r/investing
What’s the #1 tip that’s helped you invest and at what point did you find it?
Novice investor shares basic long-term holding rules and asks for top investing tips from the community.
Young-ish investor here, still early in my journey and figuring things out as I go. Currently building my habits and trying to stick to my simple rules for now:
- Only buy things I’m confident I can hold for years
- Hold it for years
- Buying is allowed
- Selling is not allowed
I think it was Charlie Munger who said something like “the best investors are dead” and who also said referring to market volatility “don’t just do something, stand there!” which helped me.
I buy index funds and haven’t sold anything in six years. It reduces tax drag and I double my money every 5-7 years. I’m fine with that.
What do you mean by reducing tax drag?
You only need to pay taxes when you sell. While you don't sell, your untaxed gains works for you multiplicatively.
The distinction here is realized and unrealized gains.
Realized gains are the money you get from selling your assets, usually stocks. This is taxed as capital gains.
Unrealized gains are the money you could in theory get if you were to sell your assets today. Because we are strictly talking hypotheticals, there is no money to be taxed and thus no taxes to be paid.
Here's an easy example using a house: You buy a house for $400,000, 10 years later the value of the house has gone up to $700,000, you have $300,000 of unrealized gains. If you were to sell the house you would have $300,000 of realized gains which will be taxed as capital gains.
When you sell an equity (at a profit) you have to pay taxes on the gains. If you've held it for less than 1 year you pay at your marginal tax rate. (32% in my case). If you've held an equity for more than one year, you pay at a different rate depending on your tax bracket. (For me, a long term capital gain is taxed at 15%). But either way you have to pay taxes on your gains.
Now, what I had been doing was buying when I felt the market was going to go up and selling when I thought it was about to go down. I'm actually a pretty smart guy but not nearly as smart as I thought I was. Selling when you think it's gonna go down feels right at the time, but you have to pay taxes on any gains you've made. Now here's the hard part...knowing when to buy back in. More than once I've seen the stock go up after I've sold it and eventually I bought back in at a HIGHER PRICE THAN I SOLD! AND I PAID TAXES ON WHAT I HAD GAINED!!! What an idiot I was.
With very few exceptions every stock I've ever sold is worth more now than when I sold it. Except when needed to purchase my house, I never sold a stock because I needed the money for something else, I sold it because I felt I could buy back in at a lower price, but those taxes were eating away at any advantage I may have made and in some cases selling was WORSE than holding.
I'm sure lots of people sell a stock before it drops and buy back in at the right time. I'm not saying it doesn't happen. But for me and my situation, I found it was hard to do consistently and I was better served by buying broad index funds (VOO, VGT) and letting the professionals rebalance the fund for me without ME having to sell stocks, pay taxes on any gains, and repurchase elsewhere.
Buy total market etf and chill. Advice taken after I lost $50k trying to beat the market.
Investing is not a math thing, it’s a behavior thing
Put your money in a low cost SP500 fund.. automate monthly buys.. leave it alone.. log out.. throw your phone in the river.
The #1 tip is: Start investing as early in life as possible. (You're nailing this one. Good job!)
In college I read Ramit’s book I will teach you to be rich. Best advice I took was automating everything. First was a $25 monthly “investment subscription” in a Target Date Index Fund. Later in college that bumped to $50. Then I could manage $100. Now I’m maxing my Roth and employer plan, again, automatically. While I’m not rich by any means, I know I’ll have a sizable retirement without having to stress about it now, because I’m already way ahead of curve.
His book also taught me how to haggle, which I used to get a sticker 13,000 on a used car to 8,000. Really made me hate dealerships though!
Thank you for your excellent contribution to this thread.
Most of my money is in boring index funds. At one point I felt like I wanted to do something more active so I bought a few individual stocks. Some have been great, like ABBV, others not so great, like Chesapeake Energy (went bankrupt and I went down with the ship). It taught me I do better when I stick to index funds.
What is the point of this comment?
Invest early and use a diverse fund as the core of your portfolio. Total USA or S&P 500.
Work out what your discount rate is. Having money at 25 to drive a nice car and take a lady out for dinner whilst your dick still gets hard is nicer than having a better car and an even nicer lady at 60.
You can't put a price on youth.