Investing is simple, but not easy.

Anyone has the ability to become financially independent – it is simple math.  Other than self-control, no skill is necessary to be a successful investor. Develop a lifestyle in which you live below your means; invest your surplus income in regular increments; when your capital base is sufficiently large it will generate enough income to support your expenses.  Simple idea; not easy to execute.  

First, to invest you need capital – the amount by which your income exceeds your expenditures. Whether you earn a high income or find creative ways to live below your means while earning a modest income to generate capital. “The Millionaire Next Door,” by Thomas Stanley and William Danko, describes most self-made millionaires as frugal people with discipline; in their study, income was not a reliable determinant of wealth. If you want to attain financial independence – to generate enough investment income to support your life’s expense – disciplined spending and saving are most important.

Let’s assume you figure out you figured out how to earn money. Learning to make money as an investor is just as complicated as the solution to the spending/saving dilemma, how do you invest your capital so your money works for you?

When asked for his rules for investing, Warren Buffett has been quoted to have said, “Rule number one: don’t lose money; rule number two: don’t forget rule number one.” His answer may seem to evade the query, but  Buffett suggests you should take a disciplined approach to investing and avoid foolish mistakes that erode your capital base.  Invest in assets that appreciate or generate income – simple, not easy.

This segment on strategy was inspired by a YouTube video I recently watched which featured John Bogle. The father of index investing, Bogle is one of the most influential investors of all time.

The next installments of this series will discuss common investing mistakes and index funds –a simple approach to investing that allows investors to mitigate mistakes.