Guest post by John Schaub, author of Building Wealth One House At A Time, Updated and Expanded Second Edition.
How is an efficient investor different? Do they take fewer risks, make fewer mistakes, or are they the first to change investments when the economy changes?
I have lived off my investment income since shortly after college. The first years we lived frugally, but as my capital compounded, its ability to support my family increased to the point where we had more than we needed.
Along the way I had setbacks, but early on adopted a plan to avoid ever losing it all.
Rule #1
My first rule was simple; never invest more than ten percent of my assets in any one place. A ten percent loss was painful, but not fatal. When an investor is “all in” then a bad day can be their last day.
Rule #2
My second rule was to cut my losses quickly. A losing investment rarely reverses course.
Rule #3
My third rule was to keep my high performing investments forever. I still own investments I acquired more than thirty years ago and they are my most profitable. And finally, stay continually invested and spend only the income your capital produces.
Learn to acquire and manage your own investments. Not only can you increase your wealth and income dramatically, you can pass what you learn to your family. No one will work harder nor more efficiently than you to build your wealth.