As a young man I had heard about Warren Buffets two rules of money but it literally took decades to fully understand why the rules were the most important financial lesson. The advice is even more prudent right now that the stock market, the housing market, and potentially the global investment community could be on the precipice of catastrophe.
What are the two rules?
Rule #1 – Don’t Lose Money!
Rule #2 – Never Forget Rule #1
Over the past two decades my income went from $100,000 per year to nearly $300,000 today and that doesn’t include my wife’s income. During that time frame, I have executed against my two pronged approach to getting rich: Get Rich Slow and Get Rich Quick.
Through the Get Rich Slow approach, I’ve maxed out 401k contributions for the past decades and well as stashing away money. Over time the nest egg has grown to considerable value and the most worrying thing now is losing some or all of this nest egg.
What’s there to worry about? For starters, the stock market is way overvalued and expected to correct or crash soon. I think it’s possible 2023 is the year the ‘everything bubble’ pops. Housing is also over valued and the Federal Reserve raising rates because of hot inflation won’t help the housing market. Housing is likely to crash this year or next and stay deflated for years to come.
But the problems don’t stop there, war in Europe, environmental catastrophes, shortages of labor due to aging demographics, and lack of reasonable central banks or governments anywhere on earth to start addressing colossal issues has me really worried.
What about Get Rich Quick? While there have been some sporadic gains here and there, this hasn’t worked out as well as I had planned. The good news is that while I’ve had speculative investments and done some dumb thing with investments, I am happy to say that there haven’t been any real loses just stable and slow gains over the decades.
To conclude, the most important lesson is to be very prudent with your money. It’s ok to splurge or spend money on your passions, that’s the point of life once you get all the basic needs out of the way. I’ll conclude by saying that I have moved the majority of my portfolio, like other wise people I follow, to cash and will simply sit and wait for the crash to come.
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