Saturday, 13 February 2016

Quote of the day

When the financial crisis was at his height, in 2009, someone asked Warren Buffet how to survive during a crash. His answer was:

"Financial staying power requires a company to maintain three strengths under all circumstances:
1) a large and reliable stream of earnings;
2) massive liquid assets and
3) no significant near-term cash requirements."

If you will make analogies with a company, then you need to think at:

1) A reliable stream of earnings: Staying in one job for the long haul is a great way to earn the confidence of your employer. But even then, nothing is certain. Make sure you have disability and life insurance to provide a reliable stream of earnings if something should happen to you. Multiple income sources is the word.
2) Massive liquid assets: Here's a point that many fail to heed. At a bare minimum, you should have enough money set aside to provide for you and your family for six months if you lose all sources of income. Keeping a little cash on hand to take advantage of stock market dips can pay off as well; then, while other investors panic-sell, you can buy shares of your favorite companies at a discount.
3) No significant near-term cash requirements: This can be a little tricky if you're just about to buy a house or send a child off to school. But in the end, what Buffet is really talking about here is being smart with your money  i.e. not making bets that you can't afford to lose.

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