Smart investing is a term that may sound complicated, but the truth is actually quite the opposite.
One of the biggest hurdles when you first start your pursuit of financial freedom is all the complicated jargon, options and advertising.
This week I want to dispel the popular myth and give you a simple smart investing guide…
…that will set you up for financial freedom. Is that ok with you?
When it comes to smart investing the first thing we have to do is avoid a common trap. This one appears well-meaning, and certainly isn’t intended to harm, however it is potentially harmful.
It’s the friends’ advice or the hot tip!
Investing in the hot tip you received from your neighbour, who overheard it from someone on the bus, who heard it from their sister who works in the financial markets, is not smart investing.
Knowing what you are doing is crucial to your success.
Warren Buffett’s most important investment strategy is never to invest in something you don’t know anything about. This one rule kept him out of the tech boom and bust of the early 2000s when everyone was telling him he should be buying all types of companies that later failed.
So what is smart investing?
Start With the End in Mind
Before you can get excited about your first or next investment, you need to identify what it is you are trying to achieve.
You do this by identifying what your end goal is for your investments…
And if you have been following my mantra, the end goal is financial freedom.
Now a quick diversion to define financial freedom in a simple manner.
Financial freedom can mean a lot of different things to each of us.
The simple definition is that financial freedom means having your investments produce enough money each month to cover your living expenses.
Every investment decision you make should be informed by whether or not the outcome will progress you closer to this result.
As a Financially Fit Bootcamp certified coach, the way I explain this outcome is to identify the amount of money that will cover your living expenses as your Freedom Number.
Your living expenses will include things like your housing, groceries, utilities, clothing, medical, insurances, and entertainment costs.
To start with the end in mind means identifying your Freedom number…
This number may change over time, particularly if you are reducing your debt commitments.
For now, I suggest you calculate it based on your current situation. It’s just a starting point or guide of where you want to be in the future.
Smart Investing Guide
When it comes to smart investing, the very basic principle that applies as an overarching guide is ‘don’t gamble’.
You are never looking to ‘beat the market’, ‘get in first or early’, or ‘trade the markets’.
There are very few people if any, in the world who can beat the market consistently.
To make investing simple, and to keep it smart, we are going to borrow some principles from the legendary Warren Buffett (yep that guy again)…
…who may be the only person who has a track record of consistently beating the professionals.
His principles are based on investing in things that people will continue to purchase…
…irrespective of what is happening in the political arena, the economy, or the stock market.
Buffett’s four key principles can be summarized as follows. Target companies that are:
- Consumer monopolies, selling products where there’s no effective competitor. They tend to be global brands.
- In businesses that are easy to understand.
- Able to adjust their prices upward in response to inflation.
- Demonstrating a history of increasing both earnings and dividends, year after year.
The good news for you is that these type of companies are household names, such as Amazon, Colgate-Palmolive, 3M, Johnson and Johnson and Wal-Mart.
He even has holdings in McDonald’s and Coke (I think this is because he drinks so much of it)…
As we know Warren Buffett is a specialist with the stock market, so the above list is reasonably specific to stocks.
The addition that I would make relates to property. Housing is an essential requirement for everybody, and therefore smart property investing is also a key component of smart investing.
Cash Flow is the Hero
Smart investing is all about cash flow…
There are thousands of reports and articles available all over the internet about investing for growth and how you should be buying for long-term growth.
To an extent, this is good advice. You obviously want to invest your money in assets that will be worth more in the future. Capital growth is a key component of our strategy…
But, contrary to popular advice, the most important consideration for you is CASH FLOW.
In order to achieve financial freedom as quickly as possible, invest in assets that provide you with a consistent, predictable, passive income stream, year after year.
It is this passive income stream that will cover your living expenses and deliver you financial freedom…
…and this is when you no longer need to exchange your time for money.
The money you need every month to support you and your family comes from your investments. You no longer need to work to live.
You will have your life back, your time back and you will be free to do what you want when you want, you will be financially free. Woohoo!
Conclusion – The Way Forward
When it comes to smart investing, you now know the most important element, cash flow…
And previously I have discussed your first priority to get started, your emergency buffer.
Without the need for pundits, experts, financial advisors, or the noise in the media, you have the keys to true financial freedom.
With this knowledge, you have the framework to build your wealth generator that will deliver you true financial freedom faster than you thought possible…
In a manner that is safe, secure, and free of money stress.
Next week I will explore this topic a little further by giving you some tips for what to invest in, how to invest, and where you want to hold your investments.
If you are interested in getting started now…
…and would like one of my free financial freedom strategy sessions, click on the link below to schedule a time with me.
Remember there is no time like the present. If not now, when?