Four Principles for Financial Freedom
What does it take to be rich?
What does it require to have true financial freedom?
Do you need to come up with a life-changing invention? To truly be free, do you have to cast off the tie and the corporate shackles and set out on your own?
Well, before you storm into your boss’s office and tell them you quit, keep this in mind: Contrary to popular opinion, most of the nation’s wealthiest individuals didn’t get rich by starting their own businesses.
Yes, many of the highest profiles and almost all of the super-wealthy did. I’m talking the Mark Zuckerbergs, Bill Gateses and Jeff Bezoses of the world.
But so did many ordinary men and women of far less affluence… your neighbor… your mechanic… the owner of the local coffee shop that’s not named Starbucks… maybe even your parents or aunts and uncles.
You don’t need to start a business yourself – not unless you have some driving passion to do so.
The fact is, most folks with a seven-figure net worth didn’t.
So now the question becomes this: How did most of these seven-figure achievers get there?
The answer might be simpler than you think…
The vast majority of rich Americans achieve that milestone because they think seriously about actually getting rich and investigate the process.
And one of the things ALL the richest people in the world focus on is cultivating PASSIVE income.
Of course, investing in the stock market is the best method I know of for generating passive income and changing your lifestyle from rags to riches.
More importantly, successful investing boils down to following four basic tenets.
Many of the world’s best investors use this same set of principles.
Learn them… and you’ll quickly get yourself on the way to building a million-dollar portfolio.
Principle No. 1: Use a Proven, Time-Tested Investment Strategy
For starters, you have to do what’s possibly the hardest thing.
You have to honestly look at yourself and ask if you have some self-destructive investment habits. Or at the very least, you have to confess that you’ve made several “boneheaded” investment mistakes in the past that could have – and should have – been avoided.
Don’t worry… you’re not alone.
We’ve all made blunders and missteps.
In my opinion, failure is more important to learning than success.
Failure keeps us humble.
Failure teaches us what we shouldn’t do.
Unfortunately, many people are guilty of making the same mistakes over and over again.
The issue is our brain.
We’re not psychologically wired to make rational decisions with our money.
Instead, we’re actually foolish, sentimental, illogical and badly flawed.
Behavioral economics is one of my favorite fields of study. In fact, a copy of Nobel Prize winner Richard Thaler’s Misbehaving has a prominent spot on my office bookshelf.
And the field has identified time and again the troubling trends that exist.
We’ve all heard the saying “talk a big game.”
Well, according to behavioral economists, many of us are guilty of this, especially when it comes to finances and investing. We say much, but often do very little to nothing.
For example, we say we’re going to do thorough research…
We tell ourselves we’re going to pick fundamentally solid companies…
We’re adamant that we’re going to remain logical about our decision to sell…
And this time, we mean it!
But the reality is, we do no such thing.
Without going into the gory details, study after study shows that nearly all individual investors make irrational stock market decisions.
This is practically a universal constant. And the irrational behaviors include…
- Regret avoidance, which explains why you do “nothing” with your current portfolio
- Hindsight bias, which explains why you think you’ve done a remarkable job managing your portfolio – even when you haven’t
- Loss aversion, which explains your reluctance to sell losing positions.
Write those down on a sticky note… Print them out and pin them to your office wall… Do whatever you need to do to remind yourself to look for these common missteps.
This should wake you up to a very real but potentially devastating fact. Investor behavior isn’t driven by simple, rational greed. Instead, it’s often fueled by a desire to avoid feeling stupid!
We feel worse when we make dumb moves than we do when we fail to make smart ones.
Studies on behavior at the University of Chicago showed that “losing money feels twice as bad as making money feels good.”
That’s why it’s so easy to fall into those three irrational behaviors.
The first step on your journey from rags to riches is admitting that, most likely, you’re no “ideal investor” and that you’d better start doing things differently if you want to build a million-dollar portfolio.
In my trading and research services, I follow an investment formula that’s likely the most powerful wealth-transitioning system in existence. And as you’ll soon discover, having an effective system – especially one that you can stick to regardless of the circumstances – is more valuable than gold.
Principle No. 2: You Must Asset Allocate Your Portfolio
At the heart of my formula is asset allocation.
Those two words are the holy grail of investing.
They’re the secret to why so many of our longtime Members get rich and, most importantly, stay rich.
Quite simply, asset allocation is determining the most effective and optimal mix of investment opportunities. These include a diversified mix of stocks, bonds, cash and real estate that suits your investment style, your risk tolerance and how quickly you may need to cash in returns.
Asset allocation is the foundation of investment success.
Ibbotson Associates, a highly regarded financial research firm, conducted a study identifying the primary reasons for the success or failure of an investment portfolio. And its findings are something most on Wall Street want to keep buried.
It found only 5% of investment returns could be explained by “investment selection.”
Take a moment to let that sink in…
Now, here’s the secret Wall Street doesn’t want you to know…
Ibbotson found that asset allocation was far more important, accounting for nearly 90% of investment returns!
So let’s start by breaking down your total investment funds into asset classes. An asset class is a group of securities that have similar financial characteristics.
Today, the privilege and curse for investors is that a wide range of asset classes is available.
But the five principal types of long-term investments are…
- Real estate
- Precious metals
- And somewhat of a catch-all, “cash” – meaning cold-hard greenbacks, as well as highly liquid and secure short-term instruments like T-bills, money market funds and CDs.
When properly mixed, these asset classes can smooth out the volatility (or variability) of your returns – even while increasing them!
And that’s the whole point of proper asset allocation.
Now, the problem is that every investor’s needs are different. So there’s no perfect mix everyone should adhere to.
But just like everyone’s grandmother’s chocolate chip cookie recipe likely starts with the five same basic ingredients, asset allocation has some standards.
For example, investors looking forward five to 10 years or more should consider something along the lines of…
- 60% stocks
- 20% bonds
- 10% cash/Treasurys
- 5% precious metals
- 5% real estate.
Your personal tweaks and touches, accounting for your tastes and needs, will likely come into play.
And that brings us to another key aspect of asset allocation: mastering the rebalancing act.
So what happens when one asset class does extremely well while another does poorly?
Do you abandon the “dog” and pour more money into the top performer?
Well, it may appear counterintuitive, but quite the opposite is true.
You rebalance your asset allocation once every 366 days.
This is important because this way your moves will qualify for long-term capital gains tax rates.
And when your annual reallocation date arrives, simply reset your portfolio to how it was originally established.
It’s sounds simple enough, but it’s tougher than you might think to adhere to.
But at the end of each year, you sell off enough of the appreciated asset classes to return them to their predetermined allocated level.
And this strategy has some very powerful advantages.
First, it automatically requires you to always sell high and buy low.
This is a fundamental flaw that eluded a large population of investors during the dot-com and real estate crashes.
Keep in mind that asset allocation isn’t a market-timing tool. Yet it can, and should, consider everything from the current market conditions to falling interest rates to whether the economy is slowing or expanding rapidly.
That said, if you find yourself at the tail end of a bear market and want to reallocate your portfolio prior to or later than the suggested 366 days… well, go ahead and take advantage of the situation.
Who doesn’t like to grab a bargain if the market is holding a fire sale?
Principle No. 3: Never – Ever – Lose Big Money in the Stock Market
Buying stocks is the easy part.
In fact, it’s the easiest part of investing.
The hard part – the part most investors struggle with and lose sleep over – is knowing when to sell.
Pulling the trigger is the real hand-wringer.
But it’s essential to building a $1 million portfolio.
For investors who lose money, the biggest reason is usually failure to protect profits and cut losses.
This is tragically an easily avoidable situation.
Many investors simply aren’t aware that they can accomplish this using a safe and effective strategy: the trailing stop.
While most investors think of trailing stops as “stop losses,” that’s only half the story.
Trailing stops also help us protect our profits.
The general rule I use is a trailing stop policy of 25%.
With some exceptions, we will sell positions in our portfolio as soon as they’re 25% off their closing high since we purchased the stock.
For instance, if we purchased a stock at $10, our initial stop is $7.50. Over the next several months, as the stock moves higher, the trailing stop moves along with it.
So let’s say the stock’s highest close is now $15. The trailing stop moves up to $11.25 (15 x 0.75).
This is vital because it’s virtually ensuring you of a profit if the stock drops.
However, let’s say the stock continues to move higher and now has a closing high of $25. The trailing stop then rises to $18.75.
Like a faithful dog, the stop trails the stock wherever it goes… as the name implies.
Now, let’s imagine the stock runs into unexpected trouble. Shortly after peaking at $25, it sinks and closes below $18.75. This triggers your sell stop. It’s important to note here that we base our sell decision on the closing price, not intraday prices.
But a stock you bought at $10, you sold at $18.75.
That’s a gain of 87.5%!
And you didn’t have to ask yourself, “Is now the right time? Is it going lower or will it bounce back?”
The decision was emotionless and mechanical.
All great traders and investors consistently cut losses short and let their profits run.
You’ll likely hear that mantra again and again.
And I’ve found that a trailing stop is one of the easiest and most effective ways of doing that.
As a final caveat, let me add that there is no “magic” to a 25% trailing stop. That’s often the standard I use, but you are free to use whatever percentage you’re comfortable with, whether it’s 35%, 20%, 15%, etc.
The important takeaway here is to have an exit strategy. And a designated trailing stop is the simplest discipline to help you adhere to that.
Principle No. 4: Exploit Clear Trends
The cornerstone of my investing strategy is exploiting trends.
You see, the key to the vast wealth of billionaires like Jeff Bezos, Bill Gates and Mark Zuckerberg is WHEN they started their businesses.
They got in on massive trends BEFORE they hit the mainstream.
And you can use this power to “piggyback” your way to your own financial freedom and fortune.
I did it myself.
And I continue to practice this today over and over with my own money.
I’m always on the hunt and lookout for emerging and profitable trends. Then I target the top companies in these new markets.
In short, one of the quickest ways to life-changing gains is buying a piece of fast-growing, new businesses at the right time.
That’s before they’re the darlings of Wall Street or before they’re making headlines on mainstream financial news networks.
I spend a great deal of time identifying very clear trends that will shape the economy over the next decade. And once a trend starts to come into focus, the real hard work begins…
Finding the best of the best… finding the companies I think will be the biggest beneficiaries of that trend and will offer the most upside to investors.
These become the recommendations for my services at The Oxford Club.
And the trends I focus on will persist regardless of what’s happening in the economy right now, regardless of what the Federal Reserve’s next move may be and regardless of the estimates for the next few quarters.
These are trends that will be felt for decades. And that gives investors the opportunity to find the next Amazon, Facebook, Microsoft and Netflix.
Start Creating Your Own Financial Freedom Right Now
As the saying goes, “A journey of a thousand miles begins with a single step.”
These are your first four.
At The Oxford Club, our investment research team has relied on these four principles for years to generate market-beating returns in every type of market.
Throughout our journey, we’ve helped Members buy new cars, pay for tuition, buy dream homes, take fantastic vacations and build million-dollar portfolios.
We’ve heard from them – and have been humbled by their praise – in the hundreds of testimonials we’ve received. And we hope to do the same for you.
We’re more than happy to do the “heavy lifting” for you by bringing high-quality investment ideas to your attention.
But it’s essential for you to realize that the basis of your success will boil down to these four investment tenets.
These are principles you can easily use and put into action right now in your own portfolio.
Your rags-to-riches story is yours to create. Our paths might not be the same, but our journey is.
I believe financial freedom is a place we should all have the chance to see. And I’m here to help you every step of the way.
I’ve already assisted thousands of regular Americans on their journey from rags to riches. I hope you’re next.