1st law of money: only invest money that you don't need

I just turned 23 years old, and I have been putting money in the stock market since 3 years ago. When I was 20 years old, I read books on Warren Buffett, and on investing. All the books touted that it is good to start early to let the effects of compounding set in. So, there I was persuaded, and went to  Philips Securities to open a POEMS account, signing up for their Share Builder Plan after I was convinced that Dollar Cost Averaging would turned out well in the long run.

My mindset then was, "If I could grow my money at 7% each year, I would have XXX amount by the time I graduate from university. I could use this money according to how I wanted to use it."

Every now and then, whenever I have some spare cash, I would put a little into equities. During June, I interned at an accounting firm, and managed to earn a little money. The Singapore stock market was fairly valued at the time, trading around 15 times PE. I was constantly thinking of wanting to put this money in, earning a little growth.

Halfway through my internship, I got news that my exchange application was successful, and I was going to Germany for one entire semester come next year April. I was happy but I needed around $10,000 to cover my expenses. I thought to myself, "I have about $20,000 in equities, I could put around $3,000 in more to earn maybe around another $1,000 by the end of the year to partially fund this exchange."

Fortunately, I did not put that money in, and it is still sitting around as liquid cash. Why? The Singapore stock market has tanked, and broke through the key resistance level of 3,000 points. My portfolio has lost about $1,000 in value. If I had put the money in, I would have lost even more.

What is the point of this story? To me, it tells me an important lesson: to only invest money that I don't need. Even though stock market valuations are very low and attractive now, I cannot put money in, because this is money I need. I will not know whether the market will recover before I leave for Germany, or even drop lower. This is money I cannot afford to lose.

The stock market will always rise in the long run, but how long is the long run? If we put money that we need into the stock market, will we always be so sure that the stock market won't be at a crash when we need the money again? That is what almost happened to me, but I was fortunate enough to learn a valuable lesson from it.

The 1st law of money: only invest money that you don't need.
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