Are you really a good investor?
By Gordon Powers, Sympatico / MSN Finance
Although you don’t see him as often now, Knight Kiplinger was often a no-nonsense guest on Wall Street Week, CNN and CNBC. Now editor of the Kiplinger Letter, the longest continually published business newsletter in the United States, he recently published an Investor Manifesto that goes a bit further than the usual “buy low, sell high” advice.
As credos go, you could do a lot worse.
I am an investor. I do not trade my assets frequently. That's speculation, not investing.
I am also a saver, fueling my investments with continuous savings from current income.
I know that every kind of asset entails risk – even cash, which can be eroded by inflation.
I know that higher returns entail higher risk, in every kind of asset.
I accept those risks, but I mitigate them by owning a diversity of assets.
I regard my home as a place to live, not as an investment. It is not a substitute for retirement savings.
I have an investment plan and a plan for asset allocation, in consultation with a financial adviser.
I invest regular amounts every month, in both rising and falling markets. I know I cannot gauge market tops and bottoms. If I receive a windfall – a bonus, bequest or gift – I gradually feed it into my regular investment mix.
I don't pour more money into hot markets nor completely cash out of plunging markets.
I spread my investments among several asset classes, in a mix fitting my age and risk tolerance.
My share of bonds roughly equals my age. I will allocate to stocks a declining portion of my financial assets as I get older.
I rebalance my portfolio every quarter. If the stock market plunges, pushing my stock allocation way below its target percentage, I sell bonds and use my cash to buy stocks.
I force myself to sell high and buy low by periodic rebalancing - just what is temperamentally difficult for most investors to do.
I know that stocks are risky in the short run, so I hold in equities no money for which I have a likely need in the next three years.
But stocks are not too risky in the long run. They have outperformed all other commonly traded assets over periods of 15 years and longer.
Foreign stocks account for at least 15% of my stock allocation. I believe that developing economies will enjoy much higher growth than the U.S. in the decades ahead.
I never borrow against my stocks. Margin calls could force me to sell good assets at a bad time.
I stick with my game plan. I do not check the value of my investments every day or even every week.
I try to keep my cool when other folks are losing theirs.
I remind myself often: I am an investor.
Can you say the same?
Posted by: Jsteed | May 14, 2021 6:21:15 PM
Yes.
Posted by: Trepidum | May 18, 2021 10:49:27 AM
I generally agree with everything except the second part of line 7: "in consultation with a financial
advise(o)r". That is self-promoting and simply not necessary. They are just there to make money off of your money.
Financial advisors' value (believe it or not, there is one) is limited to providing links to articles such as these. You can read up these things and do everything yourself. Just start simple and basic with paying off your mortgage completely, and buy GICs and gold, and only when your retirement base is secure, venture in to other areas with can-afford-to-lose money. If you do not feel confident that you are educated enough to do the required research for unsecured investments, stick with the basics. Don't let anyone talk you into letting them manage your retirement money for you.
Posted by: Robert Palmese | May 18, 2021 3:56:38 PM
The comment by Trepidum is as valid (or even more so) as any of Gordon's commandments. The entire financial industry's mission in life is to make money off investors' money, regardless of their individual gains or losses. While all financial advisors obviously prefer a win/win situation, at the end of the day I've yet to meet one ready to sacrifice his revenues to prevent his customer's losses. I wish I had come to this realization in a less painful way but I've seen the most insightful, astute, seasoned professionals in the bull years turn to naive, surprised, helpless babes in the wood when the crunch came. The suspension of disbelief that the investment industry has talked us into could turn Santa Claus into scientific fact.
Worth repeating: Don't let anyone talk you into letting them manage your retirement money for you!!!
Posted by: Dr. J. Lindon | May 23, 2021 5:08:35 PM
I disgree about the comments on financial advisors. I am not going to say that all of them are good. I am happy with mine. I pay a mere $2000 per year and my returns are far higher than what I could achieve on my own. My work is of higher priority than managing my investments. The time I would spend looking after my investments would cost me at least an order of magnitude more than what my advisor charges for time. She also looks for tax shelters which I need to rely on heavily given my income. My advisor has far more resources than I for doing this kind a work. But, if others think they can do better, then all the power to them.
Posted by: Trepidum | May 25, 2021 3:32:48 PM
Dear Dr. Lindon,
Thank you for your comments. Sometimes I feel just the same as you, with my higher income. That is why I don't cut my own grass, shovel my snow or service my own car. But it is precisely because of this reason (high income) that it does not matter at all whether I make x% on my own or x plus delta x% with someone's help. As long as the capital stays intact, retirement is always secure! Doesn't take much time to manage investments if you keep it simple. No point being greedy. Good luck with your advisor. I hope she shares this philosophy and is not out there to make commissions behind your back. By the way, I'm not sure tax shelters are really necessary if you work through a corporation.
Trepidum