Basics of Investment

Jia L (John) Han

Everyone should learn the basics of investment. If you live under communist rule, the government controls and arranges most economic activities including how much you get paid, when you retire, and your living allowance after you retire. In a capitalist economy, you get what you earn and the government cannot claim your income. You will pay tax. The government needs tax income for public goods such as defense, roads, airports, etc. It is your responsibility to save and invest while at your prime working age. When you retire you would have sufficient money to live a comfortable life. Besides retirement, you may have funds not needed for a few years. If you understand investing, you can use your knowledge to improve your financial standing.

(Most developed nations have some welfare programs and/or safety nets. Some of your income tax is used to fund such programs. Even then it is still useful for you to plan your own retirement rather than rely on the government. Because people live longer, there could be a shortage of funds when you retire.)

The next question would be how to invest? There are a few investment categories: residential homes, general real estate, stocks, bonds, gold, and collectibles (such as paintings, and relics). If you study [1-4] and much more, for long-term investing (for example, 5 years) stock index is by far the best way to invest. That is to buy a broad stock index fund, such as Vanguard 500 in the US and SP200 or SP300 in Australia. Read a CNBC report of Warren Buffett’s comment [5]. I agree with him on every point he made there. For most of you, you can stop here. I still recommend you to read [1-4] since they give general knowledge and are not difficult to understand. You might be interested in [5-8] too if you can read Chinese. Warning: it is extremely difficult to beat the market (meaning consistently do better than the index). I will explain this in the future.

References:

1. David and Tom Gardner, "The Motley Fool Investment Guide," Fireside; Rev Exp edition, 2001.

2. Jeremy J. Siegel, "Stocks for the Long Run," 4th Ed. 2007. (2nd edition)

3. Burton G. Malkiel, "A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing," 9th Ed. 2007

4. Niall Ferguson, "The Ascent of Money: A Financial History of the World," Penguin Books, 2009.

5. 3 investing lessons Warren Buffett shared at the 2021 Berkshire Hathaway meeting

https://www.cnbc.com/2021/05/03/investing-lessons-from-warren-buffett-at-berkshire-hathaway-meeting.html

1. 次贷危机和投资浅谈 （外链）

2. 再谈投资

3. 诺贝尔经济奖、经济学家与投资