Warren Buffet’s number one rule about money is to not lose money. Now, you might think “how will I get rich through just not losing money? I can’t gain any money by just not losing!” And you would be right to be thinking that way.
However, this rule is number one for Warren Buffet for a reason. Also, if you do not know who Warren Buffet is, he is one of the richest people in the world who has made many profitable investments. We want to bring the thoughts of moguls like Warren Buffet as your wealth management in Manchester team – this is important to us.
The reason is: most people fall at this hurdle. The very first hurdle at that. People are very good at losing money. We would say that virtually everyone is susceptible to losing money. We live in a very tempting society where we are always being advertised to, made to feel bad about ourselves and how money (well, spending that money) will solve all of our problems. We spend our money on things that do not really do anything for us apart from solve the problem that someone else put in our heads anyway!
So what does Warren really mean when he says don’t lose money? He means: only use your money to make more money. If you do not – you simply lose the money. There is no way of getting it back. You have used the money on something (let’s just say a fancy new carpet for your bedroom for the sake of argument) that cannot make you any money in any shape or form. This would not be the same as spending money on a well-presented suit (we do not mean suits costing thousands of pounds) as you can wear this suit to a job interview or business meeting. The suit will, in essence, help you on your path to making more money.
The same goes for investing your money. When you have money set aside to invest – the goal is to never lose that money. That is the number one rule. Do not lose money.
So how can you follow Warren’s golden advice and never lose money investing? We hear a lot each day about different investment tactics and perspectives. Some terrible, some good. Frankly, many of them do not consider Warren’s golden rule and we want to dispel some terrible tactics right now. Hopefully at least one of our readers will check themselves before putting their money into something where they could quite easily lose it. Remember – Do. Not. Lose. Money! If it is good enough for Warren it is good enough for everyone.
Let’s get into two things you can avoid to not lose money when investing.
Do not invest tiny amounts of money.
This one might be hard to follow. What we mean is: do not invest tiny amounts of money where the return is not worth losing the money you invested.
Let’s say you make a £500 investment. This is how much money you have set aside from your living and emergency money. You will not see that £500 for a year. However, you are guaranteed to make between 1% and 10% on the £500 after a year has passed.
Let’s say you get the best result. Congratulations, 10% of your money after a year!
However, it is not all sunshine and rainbows.
You have, in essence, ‘lost’ your £500 for a whole year (the money could have been used to make more money in that time) all for the sake of gaining £50.
If well deployed, you could have easily made more than £50 within a year using the original £500. So although you have not permanently lost the £500 – you lost time to use that money – which is opportunity cost. You cost yourself opportunity to use the £500, which is like losing time and money.
If you had £50,000 to invest or even £500,000 – you can see that returns of £5,000 to £50,000 are worth not having that money for a year. You can do a lot more with £5,000 and £50,000 compared to £50. The loss of not having the £50,000 or £500,000 for the year.
Do not invest in fads
Although hard to distinguish what is a fad and what is not – do not invest in things you know nothing about. Naturally, if you are a tech guy – look for tech investments over property.
You will have a much better grasp of things like cryptocurrency over the property investor.
Much like the property investor should keep within the property world where they know a lot.
They would be fools to invest in crypto just because it is the current fad. The investment is being made emotionally as crypto is just the ‘big fad’ at the moment as opposed to having a strong understanding in the future of cryptocurrency.
Invest in things you have an understanding about. Or, learn about the investment until you have an understanding into what your money is going towards.
We know that any advice that Warren gives or rules that he lives by are good enough for us. We have taken on board Warren’s advice about not losing money as best as we can. Everyone should! Don’t listen to people who shun financial and investment advice – they have probably given up on making their money work for them. Investing is the best way to make money the world has seen. It is better to make your money work for you than work yourself!