I considered including a few pieces of advice on investing in my previous advice blog, but decided I probably had more to say about the subject than would fit. As it turns out, I probably have more to say than I can or should fit into this blog, so I’ll try to keep it short and sweet.
First of all, I am an amateur investor. I have no credentials, street creds, special training or education in investing. I’ve never taken a finance or economics course. I’ve never read books on the subjects. But I’ve done it for my family for decades with reasonably good results. As my CPA would say, “I don’t swing for the fences, rather, I try to get on base and patiently and methodically work my way around the diamond.” I am a conservative investor. I am not a trader, although, I do trade, but very rarely. I offer a few words of wisdom about investing which I consider to be sound advice.
Don’t invest any monies you can’t afford to lose. There are no sure things. Don’t believe anyone who says otherwise.
Don’t believe anyone who promises a specific rate of return. In particular, don’t believe anyone who guarantees a rate of return greater than 7-8%. No one knows with certainty. There is risk involved in investing. There is also reward.
Don’t chase returns. This used to be sound advice, and I happen to believe it still is, but I’m aware that some well-publicized traders have been amazingly successful, at least in the short term, using this method with the Big 7 during the past year. Not me. I don’t do that. I believe that in-depth research of credible web sites and other resources can ultimately lead to success, but one can never be sure.
Don’t put all your eggs in one basket. I believe in starting off with index funds and mutual funds managed by reputable investment companies, so that you’re investing in a number of securities at the same time. Some will end up winners, and some will end up as losers, but with solid management, the winners should eventually outpace the losers. I never buy one individual stock, If I buy a stock, I also buy a few other well-researched stocks to soften the blow of any one that turns out to be a poor investment.
When I started off, I invested in two or three individual stocks. I became impatient with them and ended up selling them all within two years. Big Mistake. I had done my research better than I had realized, but I lost faith in the stocks. One of them was Apple. The others also turned out to be long term winners. I then invested in mutual funds. Most of them turned out well, and I still own most of them. But of course, none of them turned out as well as Apple.
Choose the right kind of account to accommodate the stock. One of the worst mistakes I made was to place an oil & gas limited partnership stock in an IRA. I ended up having to pay considerable taxes when I sold the stock. It generated considerable taxes because it generated considerable income while it was growing unchecked in the IRA. Overall, it was a real winner, but it would have been even better if I hadn’t had to pay all those penalties and interest. Darn. Learned my lesson there.
Choose index funds and mutual funds with reasonable expense ratios. Pay attention to how and when expenses are deducted from your positions. Estimate what expenses will cost you. Don’t overpay.
Diversify, diversify, diversify.
Don’t invest until you understand what you are doing.
Don’t invest until you understand the terminology used in your research. You can’t understand what you’re reading or watching if you don’t understand the terminology. There is considerable jargon to learn. It’s a whole new language. And it grows daily. I regularly look up the meaning of new terms.
Accept that some of us are financially oriented, and some of us will never get it… maybe not even with extraordinary effort to do so. Don’t invest if you don’t get it!
If you don’t invest, then you either need to generate considerable income working or do an extraordinary job of controlling expenses and saving so as to set aside adequate funds for retirement.
Be very careful if you hire a professional to manage your investments. Understand how and when they take their commission. Be familiar with their return history. Understand the concept of “churning.” Don’t hire your brother-in-law. Don’t hire someone if you can do it for yourself. Fire your manager if you no longer trust him. Don’t be shy.
Keep up with the market. Invest the time. I still watch Bloomberg and CNBC at least 8 hours a week, usually more. I watch the other channels, too, from time to time, but I try to avoid those that spend too much time on politics and other non-business subjects. I avoid channels that either don’t identify the credentials of their so-called guest experts or that don’t leave the credentials posted long enough for me to internalize them. I avoid anchors who spend time interviewing fellow business anchors and commentators from the same channel. I want to hear from primary and knowledgeable sources. I avoid anchors who deliberately lead their guest commenters to espouse specific political philosophies. I avoid anchors who give me too much opinion and not enough facts. If an anchor claims that Congressman Joe Blow’s legislation has been good for the coal-mining industry, then I want to see charts and graphs that back up those claims.
Remember, don’t invest if you don’t get it. It’s too big a risk. Good Luck.