Investing in the Stock Market Explained in 5 Words
Here’s how to spend less time thinking about investing and more time building wealth
Diversify, buy, and never sell.
Put all the other garbage you read about investing out of your mind. You do not need to study company balance sheets or understand what a candlestick chart is or what a P/E ratio stands for.
Most people writing about those kinds of things have only a surface-level understanding of them, to begin with.
Diversify, buy, and never sell. That is all there is to it.
Diversification does not mean investing in 5 tech companies and Bitcoin
I laugh when I read about an investing guru’s “diversified portfolio,” only to find out their idea of diversification is a handful of individual stocks and some crypto.
Real diversification has three essential elements.
Investing in different types of assets.
Investing in assets in different geographical locations.
Buying all of the assets in each asset class you invest in.
Why you want to buy different types of assets
If you invest in stocks, bonds, and crypto, that is diversification by types of assets because each of these asset classes has different risks and is not perfectly correlated. That means if the stock market is down 5%, crypto may not be down at all, and if it is, it’s probably not down 5% (it’s probably down 20%.)
Likewise, when the stock market is down, there is a good chance bonds might be up, therefore, reducing the overall level of volatility (wild swings) in your portfolio. By the way, you probably hear the word “volatility” thrown around a lot. It’s just a fancy way to say, “big swings up and down.”