Earning money is a dream for many people. However, it is not just about earning a lot of money. How you manage and invest your money is much more important. Today, we will introduce five principles to grow your wealth. These principles are simple yet powerful. Let’s find out together!
Don’t Lose Money!
Many wealthy people say, “Want to save money? Never lose it.” It sounds simple but holds deep meaning. In the stock market, there is a term called “HODL.” However, it does not apply to all situations.
For example, if you invest 10 million won in a stock and lose 50%, then recover 50%, your 10 million won becomes 7.5 million won. You end up losing 25%. It is crucial to never lose money. Warren Buffett also said this.
First, never lose money. Second, never forget the first rule.
Look for High Return-Low Risk
To avoid losing money, you need to find high return-low risk investments. Paul Tudor Jones maintains a 5-to-1 formula. In a game where the win rate is 1 out of 5, and the reward is 5 times, if you play the game with 1 million won five times, you will end up with 5 million won. At least, you will not lose your principal.
Carl Icahn made 150 billion won by threatening to withdraw his investment unless the management policy of KT&G changed. It is important to accumulate money through high return-low risk strategies.
Harness the Magic of Compound Interest
The power of compound interest is proportional to the rate of return and time. For example, if you invest 100 million won at an annual compound interest rate of 10% for 10 years, it becomes approximately 259.37 million won. Even with the same 10% interest rate, the actual rate of return considering taxes and fees is more important. Investing in financial products with a high actual rate of return is the way to maximize the magic of compound interest.
Understand and Ride the Cycles
The economy is cyclical. Ray Dalio gained fame through his All Weather Portfolio strategy. By adjusting the portfolio according to the economic cycle, you can maximize returns and minimize losses. It is important to adjust your investments according to the cycle. As seen in the debate between Buffett and Dalio, investing in safe assets is crucial during prolonged downturns.
Capitalism is a First-Come-First-Served System
One of the biggest features of capitalism is that the first-come-first-served principle prevails. For example, the price of land in Gangnam was 4,500-6,000 won per pyeong before the development announcement. After the development news spread, it skyrocketed. Understanding the importance of information and early choice, and acting preemptively is crucial.
Conclusion
Saving money is not just about earning a lot, but how you manage and invest it is important. It is crucial to understand and practice principles such as not losing money, high return-low risk strategy, the magic of compound interest, understanding economic cycles, and the first-come-first-served principle. [Start practicing these principles now!] It will greatly help you achieve your financial goals.