£5,000 to invest doesn’t sound like plenty of money. But Ray Dalio would disagree. This renowned hedge fund manager founded his firm, Bridgewater Associates, in his two-bedroom flat when he was 26. Now the hedge fund is managing $160bn in assets, making it one of the largest wealth managers in the world. Here’re some of the great investor’s tips to get rich.
Set your goals
To start with, you have to set your goals. “Savings equals freedom and security,” says Dalio. “How much freedom and security do you need?” How much money would you like to earn while investing? How much money do you need to retire early? In other words, you have to set yourself financial targets and try to achieve even more than that.
Then, you should start investing. Many novice investors might feel afraid of losing money they have worked hard to earn. But according to Dalio, it’s necessary to “play the game and maximise your learning from your mistakes“. Generally speaking, investing looks risky. But it looks even riskier when stock markets crash. And yet it’s worth taking advantage of situations like this.
Buy when you’re scared
In fact, “it’s when you’re not scared you probably want to sell and when you are scared you probably want to buy,” says the great investor. This reminds me of fellow billionaire investor, Warren Buffett’s famous “Be fearful when others are greedy, and greedy when others are fearful“. Don’t try to buy when others are buying. Instead, try to buy when others are panic selling.
Take advantage of cycles
This brings us to another important point to remember. It’s essential to take advantage of the economy’s cyclicality. There have been economic crises in the past and investors that kept piles of cash at the time got really rich from downturns. But investors that preferred to stay away missed on such opportunities. Remember the 1987 crisis, the dot.com bubble, and the 2008 financial crisis. It is worth remembering that economic cycles and stock market rallies last for 10 years on average.
So, it’s worth stockpiling more shares when recessions and stock market crashes are there. This is especially true of cyclical businesses – banks and oil companies, for example. They tend to flourish when there is real economic growth. At the same time, exchanging some of the holdings for cash when the cycle is already mature might also be a great decision.
I’d be very cautious to about putting all my eggs in one basket. Instead of betting big on a single company. Try to spread your savings across a wide range of holdings. But don’t focus on a single sector that is particularly popular right now. At the same time, don’t focus on sectors that perform well only in situations of economic growth or low interest rates. Choose a variety of sectors and plenty of companies and choose carefully by all means.
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