25 key money lessons: Like any financial year, most of you would be nurturing big money goals for the financial year 2025 too. Meanwhile, money advisors often point out that your short-term goals should be in line with your long-term goals.
As a result, you should stay true to wealth creation instead of going with the flow. Here, we list some key money lessons that every investor should keep in mind. In fiscal year 2025, you may want to follow these money lessons to achieve your financial goals in the long term.
Investing greats like Warren Buffett, Benjamin Graham, Charlie Munger, Morgan Housel, and Ray Dalio recommend these lessons on various forums and platforms.
Money Lessons You Should Follow to Create Wealth in the Long Term
1. stay away from mr market: The price quoted by Mr. Market has no relevance if you do not intend to sell your securities. Unless you intend to buy or sell a stock that day, looking at the price every day is pointless. Mister Market is a metaphor coined by famed investor and author of ‘The Intelligent Investor’ Benjamin Graham to describe the illogical or contradictory characteristics of the stock market.
2. stay true to long term goals: Long-term goals could be buying a home, or children’s education, or saving for retirement. These goals are non-negotiable. Despite the temptation to spend or invest for a short-term goal, do not compromise on these goals.
3. wealth creation is the key: Earning dividends from shares is a type of bonus. And a little appreciation in stocks is exciting. But the main objective of investment is or should be to generate wealth, which may be primarily through equity investments.
4. Investing is not for the faint of heart:Markets are meant to be volatile. Therefore, you should not redeem when the market rises or falls. Be strong and don’t give up.
5. Continue your SIP during market downturn: Instead of buying more during recessionary periods, investors stop their SIPs believing that the market is not right for investment. Whereas the phenomenon of ‘rupee cost averaging’ says that investors should invest at different price points to achieve a fair average price and maximize the chances of earning high profits.
6. Importance of portfolio: Under ideal circumstances the ideal ratio between equity and debt is 70-30. Therefore, you should invest 70 percent of your portfolio in equities, while the rest in fixed income instruments such as fixed deposits (FDs) and bonds. But when equity prices rise, it is important to redeploy some funds to debt by redeeming some equity assets so that the debt-equity ratio remains the same.
7. Everything is just an event for investors: In February 2022, Russia invaded Ukraine, panicking markets around the world. After this there was a surge in oil prices. Earlier in January 2021, rioters entered the US Capitol in what was termed the United States Capitol attack. Israel then attacked Hamas in Gaza in October 2023. This and many other domestic and international events had a significant impact on the financial markets. And currently it is believed that the Lok Sabha elections will leave their mark on the stock markets.
Every time something significant happens, observers call that event a ‘watershed’ or pathbreaker, but over the long term, each event is an integral part of the ongoing market cycle. The key is to stay invested in wealth creation and tune out the noise.
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8. Buy the right one and sit back: You are advised to exercise as much caution as possible before deciding to invest in any stock or fund. After examining the stock, if your analysis suggests that it is the right investment for you, buy it and sit back later. Don’t worry about minor problems after buying the ‘right’ stock
9. Do not put round pegs in square holes: There is no one-size-fits-all approach to investing. Some things that work for younger investors may not work for middle-aged investors, who are believed to be willing to take a little more risk; Also what may work for a middle-aged investor may not work for someone nearing retirement. Therefore, the dynamics of equity-debt ratio and risk-return analysis change depending on the risk appetite of the individual investor and the age of the investor.
10. Hire an expert or consultantHowever, there are some basic investing principles that investors can learn and apply on their own. But when things get a little complicated and there are bigger stakes involved, it is always advisable to involve an expert. One should not hesitate in hiring an investment expert or money advisor.
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11. Each asset class has its own unique value proposition: Investors look at an asset class as a whole while each has its own advantages and disadvantages. For example, no matter how good investing in equities is for long-term wealth creation, it cannot replace debt and fixed income instruments or precious metals. And the opposite is also true. Therefore, it is recommended to look at different asset classes holistically and not individually.
12. investing or gambling: Remember that investing in some categories such as derivatives or cryptocurrencies is so risky that it is not much different from gambling. This is very different from long-term investing based on stock potential.
13. Diversity: It is good to diversify across asset classes, sectors and market caps. Diversification should be done at every level. One should diversify not only among asset classes but also between sectors and market capitalization i.e. large-cap, mid-cap and small-cap.
14. acceptance of Loss is the key to good investing: To paraphrase psychologist Daniel Kahneman, the pain of losing a rupee is often more painful than a job earning a rupee. Due to this, a lot of wrong decisions are taken by investors. For example, when they lose some money due to a wrong investment call, they want to correct the mistake by exiting the stock and holding on to it rather than settling for lesser losses.
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15. Knowledge of investment vs mental strength: Knowledge about investment and money is important but even more important is mental strength, tolerance, patience and other ‘soft skills’. These characteristics play an important role in the investment journey of an investor.
16. efficient market hypothesisWarren Buffett once remarked that efficient markets exist only in textbooks. Stocks typically trade at both higher and lower prices. In fact, marketable stocks and bonds are troublesome. Therefore, it is wrong to believe that markets correct themselves to reflect their true value – as suggested by the efficient market hypothesis.
17. Good stocks are not easy to find:Warren Buffett once talked about the uniqueness of good businesses when he highlighted that Berkshire Hathaway could only pick 12 good businesses in its 60 years of operation. That is, on average, only once in five years.
18. misleading short-term returns: Media headlines on quarter-to-quarter returns are extremely misleading and may misinform investors. Some stocks may look battered based on the day’s news, but they may still enjoy financial upside (for example impressive cash flow or patents) and may be a good “investable” business when viewed from a long-term investment perspective. It is possible
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19. power of combination: It cannot be emphasized enough that compounding is the key to long-term wealth creation. Warren Buffett’s letter shows that Berkshire’s growth grew rapidly after 1967. For Berkshire Hathaway’s astronomical rise, he cites four major reasons: continued savings by investors, the power of compounding, avoiding big mistakes, and the American tailwind.
20. leverage is risky: Charlie Munger once said that leverage is dangerous because there is no such thing as a 100 percent sure thing in investing. This means that even after earning high returns, when an investment falls, it may wipe out previous gains.
21. Forming Independent Opinion: According to Ray Dalio, it is important to form your own opinion about different things in investing. Just following the rumors and what is being publicized may not keep you in good stead.
22. Investing in areas you know: Dalio also believes that no matter what sector you choose, investing is risky. The easiest way to make investing less risky is to choose sectors with which you are well familiar.
23. prevent bad decisions: Preventing bad decisions is as important as making the right decisions. Be polite and value capital security. One must be prepared for unknown events and make plans accordingly. You should prepare not only for what is likely to happen, but also for what might happen.
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24. fate plays its roleMorgan Housel, author of ‘Psychology of Money’, believes that luck and risk are siblings. It is a reality that every outcome in life is dictated by forces other than individual effort. He quoted New York University academic Scott Galloway as saying, “Nothing is as good or bad as it seems.” Housel explains that luck and risk are so similar that you cannot trust one without equally respecting the other.
25. Use money to buy time: Money is useful when you can use it to buy time and do what you want to do if you are rich in the real sense. Some people may look rich but only because of property purchased with loan. Mr. Housel has written in his book ‘The Psychology of Money’ that he is not rich in the real sense. This is because these assets symbolize debt. Real money is an accumulation of income that is not spent and is not something on which you pay regular interest, and which has to be returned.
