Pay Yourself First: Investment Account
Pay yourself first from your pay check and then adjust your living expenses with the remaining amount from your salary.
| Amount: | ≈ 20% of your salary each month |
How Much:
This 20% of your salary each month should be deposited in to your investment account.
Investment Methodology:
In terms of stock investment, one needs to know three things:
- What to buy
- When to buy
- How many and how much to buy
What Stocks: Identify companies with the following fundamentals:
Sales & Earning Growth: |
≥ 20% |
Return on Equity (ROE): |
≥ 20% |
Net Profit Margins (NM): |
≥ 20% |
P/E + Inflation: |
≈ 20 |
When to buy:
When the stock is down by: |
≥ 20% |
How Many Stocks in a Portfolio:
Number of Stocks in a portfolio: |
≈ 20 stocks in diverse industry |
How much to invest in each stock:
Follow Kelly Criterion: It says, if odds are in your favor:
Invest in each stock: |
≈ 20% of your capital. |
Minimum Holding Period:
Holding Period: |
≥ 20 Months
|
If you follow these "Rule of 20" – you are on your way to the Financial Freedom. You may still chose to work for intellectual pursuit – but it would be your choice.