My Investment Principles

I believe anyone can get achieve financial freedom by saving hard and investing for the long term. Here’s the principles I follow:

  1. Live below means

  2. Invest regularly

  3. Don’t try to time the market

  4. Stay the course through market fluctuations

  5. Use market correction as an opportunity

  6. Build equities

  7. Invest tax-efficiently

1 Live below means

American people are spending more than 95% of their income. See the graph of historical saving rate which fell down from 1970s and only went up after 2007 - 2009 Great Recession.

Source / Credit - U.S. Bureau of Economic Analysis, Personal saving as a percentage of disposable personal income [A072RC1Q156SBEA], retrieved from FRED, Federal Reserve Bank of St. Louis;  https://fred.stlouisfed.org/series/A072RC1Q156SBEA , February 23, 2019.

Source / Credit - U.S. Bureau of Economic Analysis, Personal saving as a percentage of disposable personal income [A072RC1Q156SBEA], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/A072RC1Q156SBEA, February 23, 2019.

For people like me who do not expect financial support from parents and had to start from scratch as immigrant, saving is the only way to build wealth and protect my family from financial hardship. I will maintain frugal lifestyle and save 50% of income until I achieve my investment goal for retirement.

2 Invest regularly

I will keep investing savings from my pay checks (dollar cost averaging) and ad hoc bonuses (lump sum) without hesitation, regardless of market conditions.


3 Don’t try to time the market

Successful investors never try to time the market. I will not waste time to find when the market goes up and down. I will follow the path of the wise investors.


4 Stay the course through market fluctuations

The history tells that any financial corrections and crisis will pass, no matter how deep it is. I will keep my emotions in check by looking at the long term, and won’t jump in and out of the market.

U.S. economy will continue growing in the long term. The past doesn’t tell the future, however the historical real GDP per capita graph shows that U.S. economy supported by hard working people has continued its long term growth while gone through two world and several regional wars, recessions, social transformations, and technology revolutions.

Source / Credit -  US Real GDP Per Capita  from multpl.com

Source / Credit - US Real GDP Per Capita from multpl.com

U.S. economy’s long term growth has been reflected into the historical S&P 500 Index.

Source / Credit -  S&P 500 Historical Prices  from multpl.com

Source / Credit - S&P 500 Historical Prices from multpl.com

5 Use market correction as an opportunity

Big corrections (drop of 10%) happens almost every year and small corrections happen every few months. Such events are just a nature of the stock market. For example, from 2014 to 2019, there were five big corrections and five smaller ones (see the graph below).

During deep market corrections, the market will cleanse itself and come back with cheaper prices and better fundamental. I will grab such opportunities without fear to buy cheap.

Source / Credit - S&P Dow Jones Indices LLC, S&P 500 [SP500], retrieved from FRED, Federal Reserve Bank of St. Louis;  https://fred.stlouisfed.org/series/SP500 , February 20, 2019.

Source / Credit - S&P Dow Jones Indices LLC, S&P 500 [SP500], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/SP500, February 20, 2019.

6 Build equities

Equities (stocks) are the best way to build wealth. The history tells that equities have better returns in the long term than other asset classes. I will keep building my long-term investment around stocks by purchasing low-cost stock index fund.

The historical S&P 500 earnings graph shows having equities in the businesses has been the best way to take a portion of corporate earnings via capital gains and dividends.

Source / Credit -  S&P 500 Earnings  from multpl.com

Source / Credit - S&P 500 Earnings from multpl.com

7 Invest tax-efficiently

Tax is the one of the biggest expenses. I will make my investment into tax-efficient accounts first, then taxable accounts.

  • Tax-free accounts (Roth 401K/IRA, HSA) - I will place assets that have potential to create big capital gains.

    • Stock index funds

  • Tax-deferred accounts (traditional 401K/IRA) - I will place assets that have potential to create medium capital gains and/or large dividends.

    • Taxable bonds

    • Dividend stocks

    • REITs

  • Taxable accounts - I will place assets that has low or now tax liability.

    • Individual stocks (such as BRK.B) that generate no or small dividends. When I sell them after holding for the long term, I will pay taxes at the rate for long term capital gains.

    • Tax-exempt bonds such as U.S. treasury and municipal bonds.