7 Rules for financial success: a primer to investing in your 20s and 30s

2) Consistency – to provide the best chance of success, being consistent in saving and investing is essential. The benefits of investing consistent amounts over time, otherwise known as dollar-cost averaging, has been well recognised for many years. This approach is market neutral and avoids the emotion of trying to pick market highs and bottoms. Saving consistently is also a game-changer for many, allowing funds for a ‘rainy day’ to be accumulated over time. There are many automated tools available to assist with consistency.

3) Budget – We don’t believe it’s necessary to budget and track every single dollar you spend. We do believe, however, that it is necessary not to waste money on unnecessary expenses. That $80 a month gym membership you might use only occasionally, adds up to almost $1000 a year. Not shopping around for the best deals for commodity services like insurances, electricity etc will have you spending more than you need to. Today having a ‘side-gig’ for extra income is easier than ever and may help you to achieve your financial goals much faster via additional income.

5) Diversify– Don’t put all your eggs in one basket – to mitigate risk it’s best to diversify your investments. No matter how safe you think an investment may be, it’s always best to think of what the worst-case scenario is and allocate your money accordingly. Appropriate diversification also mitigates the risk of under-performing, so is an important consideration.

6) Recognise the difference between assets – there are two types of assets: ones that depreciate in value and others that can appreciate or provide value. For instance, money invested into a car is typically lost over a 2-3 year horizon. Whereas funds invested in productive assets like a business, stocks or property have the potential to provide a profit over a similar time horizon. Understanding the difference will save you thousands in opportunity costs.

7) Take reasonable risks – the younger you are, the more risk you can bear generally. Accordingly, it can be prudent to use leverage wisely and to your advantage to accentuate your returns when the odds are in your favour. For instance, if you have the opportunity to acquire a small business or another sustainable income-generating asset for a cheap price; using leverage may improve your return on equity. However, over-leverage is a danger that investors should always remain aware of.

Disclaimer: This article does not take into account your investment objectives, particular needs or financial situation; and should not be construed as advice in any way. 

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Datt Capital are a performance orientated investment manager focused on identifying high growth and special situation opportunities.