Investing Advice from Kevin O'Leary aka. Mr. Wonderful
With Kevin O'Leary coming to speak in Cincinnati on May 9th, I figured this would be a good time to do this post. While playing overseas, one of the shows I watched a lot of was Shark Tank. For anyone that doesn't know what Shark Tank is, it is a TV show featuring successful businessmen and women who are the “Sharks” or judges, and they listen to pitches from different entrepreneurs who are asking for money and guidance with their business. While Shark Tank contains a lot of entertainment, the Sharks also drop many “gems” if you pay attention. After watching multiple seasons and seeing hundreds of different pitches, you get a feel for each Shark's personality and start to have your favorites.
My personal favorite Shark is Kevin O'Leary. His nickname on the show is “Mr. Wonderful” and according to him, "It's because I tell the truth and the truth sometimes hurts, but it's still the truth." I like him because of that; he creatively structures deals and his success rate with his entrepreneurs is evident. I've spoken about Kevin O'Leary before in one of my posts about obstacles to your financial success and he gave some tips about how to handle your mortgage payment. He also has a lot of experience in the financial sector and in 2008, O'Leary co-founded O'Leary Funds Inc., a mutual fund company focused on global yield investing. He is the company's chairman and lead investor.
I realized after doing more research on him that he had a plethora of financial tips, and because of that, I want to share those with you today:
1. Put Aside 10% of What You Make
The topic of paying yourself first isn't something new that we've discussed on this blog, but if a person with a net worth of over $400 million is saying it, you should definitely be paying close attention! He says that "When you're 21 years old, or 20 or 18 or 19 and you start putting aside 10 percent of what you make, you'll [have] over $1,000,000 by the time you're 65," O'Leary tells CNBC Make It. "If no one else is going to worry about your retirement, I want you to worry about it."
2. Invest for the Long Term
Compound interest is one of the greatest things known to man. But in order for it to have the full effect, you must have time. The more time you have your money collecting interest, the bigger it will grow!
3. Invest in Low-Cost Index Funds or ETF's
Because of high fees, whether it is from the particular investment you choose or the fund manager, high fees can eat into your returns. That is why many people are choosing to invest in low-cost index funds or ETF's (Exchange Traded Funds). An ETF is a basket of different assets, and you can find ETFs that include all sorts of asset classes — stocks, bonds, commodities and real estate too. There are many types of ETF's to choose from, so you might need help from someone understanding what is in each ETF. One of the types of ETF's out on the market are dividend paying ETF's. O'Leary founded a company that offers ETFs, called O'Shares ETF Investments, which specifically targets dividend-paying stocks. A dividend is money that a company pays its shareholders, typically every quarter. By investing in stocks that pay dividends, you can spend or reinvest the amount paid out by the company, without having to touch your initial investment, leaving it to grow.
Diversification helps to limit your portfolio’s risk. It is very important to use this tactic when setting up your portfolio because it helps you minimize your downside when the market goes drops. You should never have all your eggs in one basket and diversifying your investments is a way to do that. By having a mixture of stocks, bonds, fixed income, across different industries and sectors, you can help keep your portfolio balanced.
5. Never Touch the Principal
To show an example of this say your yearly expenses are $40,000 and you have a portfolio of $1 Million. According to the 4% Rule that is used by most advisors when determining how much of your portfolio you can withdraw each year and never run out of money, you would take out $40,000 per year. Historically the stock market has returned 7%-10% per year. That means your portfolio would be generating $70,000 in interest per year. That's more than the $40,000 you actually need to live on, so you are able to take the $40,000 from the interest and live off of that instead of having to touch the $1 Million principal! He learned this rule from his mother and she gave a quote saying "If you don't touch the principal, you'll always have money. And if you always have money, you'll always have freedom."
6. Take the Emotion Out
Buying and selling stocks is usually an emotional decision. When the market is going up everyone is looking to buy, and they don’t want to miss out. When the market is going down a lot of people are fearful and are looking to sell. However, O'Leary says you shouldn't try to time the market but instead use dollar cost averaging. This means that you are taking 5%-10% of your income every month and putting it into the market, whether the stock market is doing good or bad and by doing that you are "averaging" in. "Sometimes you'll buy stocks and they're very cheap. Sometimes you'll pay more for them," he says. "But if you're averaging over time, that's a very good long-term strategy."
7. Have a Reserve or Backup
There is always some probability of losing your investment and that it could go to zero. You should have some cash set aside so that if everything blows up, you still have some money to meet your short-term needs. We've talked before about having an emergency fund and most experts say you need 3-6 months of living expenses that you've set aside. You want it to be very liquid, but the goal should be that you don't have to touch it.
These 7 tips are all great because they are simple to understand and apply. Of course, sacrifices have to be made if you're going to set aside at least 10% of your income. You might have to give up some wants to make it happen and develop the discipline to not be swayed by emotions in both good and bad times of the market. However, over the long run if you apply some of these things to your life, by the time you are ready to retire, you will be more than ready!
Share in the comment section below which one of his tips you are working on right now!