Saturday, July 14, 2012

Invest in yourself


Someone asked to Warren Buffet :

“If you were 30 years old and had no dependents but a full-time job that precluded full-time investing, how would you invest your first million dollars, assuming that you can cover 18 months of expenses with other savings? Thank you in advance for being as specific as possible with asset classes and allocation percentage.”

Buffett let out a small laugh and began. “I’d put it all in a low-cost index fund that tracks the S&P 500 and get back to work…”

What is the most important part ? I thought that the most important part was  :
“I’d put it all in a low-cost index fund that tracks the S&P 500 and get back to work…”

Actually, the most important part of Buffet's response is : "Buffett let out a small laugh".

His advice makes sense, diversification is the wall against ignorance.
Ignorance is exactly what happens to someone that would have "30 years old and had no dependents but a full-time job that precluded full-time investing".

The advice of Buffet makes perfect sense.

"Buffett let out a small laugh" is the most important .Buffet knows that someone within this state of mind can't be rich. This person is a producer and given the current monetary system, the producer's fate is to dilapide his million to banks.

Buffet is right, given the problem boundaries, the solution is perfect. But the boundaries of this problem does not exist in the state of mind of the rich:
  • The rich does not have a full-time job .
  • The rich is financially literate and so does not use diversification.
  • The rich does not necessary have "the first million dollars". (Thanks to some some financial magic)
Become financially literate, stop your job, and  invest in yourself for real assets, might be the first step to be rich.

Diversification is protection against ignorance... but what if you just kill ignorance ?

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