How to invest
like a legend
These three rules can make you
a lot richer over time
Let’s be honest. You’re probably not going to become an elite professional athlete. It’s also unlikely that you’ll end up a world-renowned surgeon or an Oscar-winning actor. But the good news is, you don’t need any special talents to invest your money like some of the biggest legends of all time.
Like so many things in life, knowing what leads to success isn’t the hard part to figure out. What separates the winners from the losers is the boring stuff—the stubbornness to just keep doing the right things over and over again, especially when it would be easier to just quit.
1. Pay yourself first
Legendary personal finance author, David Bach, has written nine New York Times best-sellers based on simple but powerful advice: take a portion of what you earn each month and invest it. Bach says you should aim for 20%, but even investing a smaller portion is enough to build significant wealth over your lifetime.
In fact, a 1926 personal finance book called The Richest Man In Babylon recommended saving 10%, advising that people should “continue working hard at their current occupations, but for every ten coins placed in their purse, to take out for use but nine.”
If you want to invest like a legend, most of the battle is simply showing up. Commit to investing a certain amount of money every single month no matter what. If the market happens to be down, be grateful that you’re buying your shares at a discount that month.
2. Own great companies
Investing legend number two: Warren Buffett. He became one of the richest men in the world by buying shares of great companies. These were basic, bedrock businesses that produced things people use every day, like ketchup, candy or car insurance.
Each year, the global economy produces more than $70 trillion worth of goods and services. And when you invest in a diversified portfolio of businesses, you own a piece of them. So, a portion of their profits flow into your pocket.
If you want to invest like a legend, forget savings accounts and GICs that pay virtually no return, and forget mutual funds that charge high fees. Invest in an efficient, low-cost portfolio of Exchange-Traded Funds (ETFs) that contain stocks and bonds from a broad mix of great companies.
3. Stay the course
Our third legendary investor, Prince Alwaleed Bin Talal, lost billions on his Citigroup shares during the 2009 recession. His response? “We’re getting hurt, but I’m a long-term investor.” Prince knew that, over time, stock markets have always gone up. Sure enough, the U.S. market nearly tripled within the next five years.
Staying the course is a biggie. Many people get squeamish and run at the first sign of trouble. The kicker is, that’s the worst possible time to sell. If you sell when your investments are down, your losses can compound. For example, if you lock in a 20% loss, you will need to earn 25% just to get your money back. It’s way better to sit tight and let the market rebound as it always has.
If you want to invest like a legend, emotions are the enemy. Do not get too excited when your investments go up and do not panic when they go down. Instead, trust that the market has reliably gone up for centuries, and just keep adding to your portfolio every month.
Financial planning is about getting your investments, insurance, and borrowing working together so you can do more of what you love. Once you start to consistently invest in a portfolio of great companies, you are in the league of legends.