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The money rules you see in the news often focus on what to buy now and how to beat the market. But Kevin O'Leary takes a more defensive, rules-based approach that focuses on what people should avoid, protect, and build habits around.
Some of his recommendations can sound conservative, but they are designed to help people avoid surprising financial mistakes with lifelong consequences. These six rules range from savings methods to handling debt. Read on to see which you can apply to your money matters.
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Save and invest before you spend
O'Leary's savings rule is well-known: Take "15% of your income when you're in your 20s and invest it in the index of the S&P 500." He considers this investment a simpler method than choosing individual stocks, and it may help you follow his other rules to keep emotions out of investing. When you use a broad index fund, you are less likely to select individual stocks based on fear or short-term trends.
The order of this pay-yourself-first mindset matters most, because savings is considered non-negotiable with discretionary spending built around it. His reasoning is that recurring automated contributions give compounding time to work and reduce the need for a high income, market-beating returns, or deep stock-market knowledge.
Pay off high-interest debt
O'Leary never says you can't borrow, but he does say that "debt is evil." He also wants people to "be out of debt by the time you're 45."
His reasoning is that you can work harder in your younger years, and many of the things you need in life (homes, college, cars) may be financed to start. But by your 40s, he says you should aim to move from owing money to owning assets that can work for you.
At any point in life, paying down expensive debt may create more breathing room in a monthly budget and prevent interest charges from draining money that could otherwise be saved or invested.
Don't let one stock or sector dominate
O'Leary has said to invest "no more than 5% in any one stock, no more than 20% in any one sector" as a way to diversify risk. Concentration can magnify losses and gains. So, while it may boost your earnings during the good times, a single company collapse or poor sector performance can wipe out your gains.
An example would be not having more than 5% in a single chip maker stock, and no more than 20% in tech. Or no more than 5% in one pharma company, and no more than 20% in health care.
Resolve $10,000 or more of your debt
National Debt Relief could help you resolve your credit card debt with an affordable plan that works for you. Just tell them your situation, then find out your debt relief options.4 <p>Please note that all calls with the company may be recorded or monitored for quality assurance and training purposes. Clients who are able to stay with the program and get all their debt settled realize approximate savings of 45% before fees, or 20% including our fees, over 24 to 48 months. All claims are based on enrolled debts. Not all debts are eligible for enrollment. Not all clients complete our program for various reasons, including their ability to save sufficient funds. Estimates based on prior results, which will vary based on specific circumstances. We do not guarantee that your debts will be lowered by a specific amount or percentage or that you will be debt-free within a specific period of time. We do not assume consumer debt, make monthly payments to creditors or provide tax, bankruptcy, accounting or legal advice or credit repair services. Not available in all states. Please contact a tax professional to discuss tax consequences of settlement. Please consult with a bankruptcy attorney for more information on bankruptcy. Depending on your state, we may be available to recommend a local tax professional and/or bankruptcy attorney. Read and understand all program materials prior to enrollment, including potential adverse impact on credit rating. "Debt-Free" applies only to enrolled credit cards, personal loans, and medical bills. Not mortgages, car loans, or other debts. Results vary.</p>
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Stay liquid
Paying down high-interest debt can improve monthly cash flow after the debt is repaid. However, using available cash to pay debt down can temporarily reduce liquidity, so it is important to balance debt repayment with maintaining an emergency reserve. This fits with O'Leary's advice to have cash or easily accessible assets available for expenses, emergencies, or opportunities.
His exact words were "Liquidity matters, always. If you can't access your capital, that's risk." And while not directed at retirees specifically, this rule can be especially important as you approach or enter retirement because there may be less flexibility to wait for a portfolio decline to recover before covering living costs.
Protect your principal and live on cash flow
Principal is the money you originally invest, and it doesn't include interest, dividends, rent, or other investment income. O'Leary's philosophy is that income from an investment should be used for spending when possible instead of routinely selling the underlying assets or principal to fund your lifestyle.
His exact words are "Spend the interest, never the principal," as he wants the original investment to continue earning and growing for you throughout your lifetime.
However, this is positioned as general advice, and many retirees will need a blended withdrawal strategy that may include selling assets, drawing Social Security benefits, receiving pension income, or using other income sources. This isn't a universal rule for every stage of life.
Favor investments that pay you
O'Leary has frequently said, "never own an investment that doesn't pay you." By pay, he likely means dividends from stocks, interest from bonds or cash instruments, or rental income from real estate. Not every growth investment produces income today, but this is the framework he favors.
Are there investments that don't pay you? Yes, and they include assets that can increase in value but not pay you back as they grow. Gold or fine art can fit into this category, even if O'Leary hasn't specifically called them out.
Also, because roughly 20% of S&P 500 companies do not pay dividends — and O'Leary has endorsed investing in S&P 500 index funds — this advice can appear to conflict with his broader investment philosophy.
Bottom line
O'Leary's habits are not as much about finding the next big payoff as building small habits and taking on less risk. Basically, high-interest debt can set you back, while consistently saving in a high-yield cash account, retirement account, or diversified S&P 500 fund can help build real wealth over time. He also wants you to stay as liquid as possible, so you can get to your money when you need it.
His advice seems simple on the surface, but how it all comes together will differ from person to person. For a truly personal plan, consider getting help from a financial professional.
More from FinanceBuzz:
- Retire like the rich: 14 ways you could build wealth in your 50s.
- Find out if you could pay less for car insurance in just a few clicks.
- Make these 7 savvy moves when you have $1,000 in the bank.
- 14 moves seniors could benefit from but often forget about.
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