Regardless of whether you think the market is still bearish or bullish, having your savings sitting in a savings account or stashed inside of a door in a ’72 Datsun isn’t going to help you build wealth. Your money should be working for you through the concept of compound interest.
I recently read Fail Safe Investing- Lifelong Financial Security in 30 Minutes by Harry Brown and put together the highlights that should serve as a basis for investing your money soundly. Harry is one of the cofounders of the Permanent Portfolio Fund which seeks to invest in the four pillars of the market place in order to increase your assets and minimize massive losses due to speculating. While it was written in 1999, his understanding of the markets and the propensity of people trying to win big money led him to write down a clear fundamental strategy for people looking to grow their money.
Here are the highlights.
-Social Security operates on a basis that would send the owners of any private insurance company to prison: It expects to repay your “contribution” with money it will take from someone else later. As the years pass, it becomes harder and harder to keep this pyramid scheme going.
-You can count on for your retirement only what you put away yourself. And you must make sure that what you put away is safe and growing at a healthy rate.
-Don’t take risks with complicated investment schemes in the hope of multiplying your capital quickly.
-You’re violating Rule #4 if you believe a certain event has to come about— or that a given investment can’t fail— or that you have good reason to know that some apparent risk simply won’t materialize— or that someone out there knows which way the market will move next year.
-The truth is simply that: Anything can happen. Nothing has to happen.
-The investment expert with the perfect record up to now will lose his touch as soon as you start acting on his advice.
-Nor can you expect him to spot the right times to buy and sell reliably. No one can, because no one can know the motivations and intentions of hundreds of millions of different people— each of whom will have an effect on next month’s prices, and each of whom can change his mind in unpredictable ways.
-But no investment is foolproof. Its outcome will depend on far more factors than you or anyone else can identify. People you’ve never heard of will make decisions, to buy or sell, that will push your investment toward success or failure.
-It is better to earn interest than pay it.
-Investing is complicated and difficult only if you’re trying to speculate and beat the market.
-Every investment has its time in the sun— and its moment of shame.
-If any of the four investments has become worth less than 15%, or more than 35%, of the portfolio’s overall value, you need to restore the original percentages.
-To rebalance the portfolio to its original percentages, just sell enough of the leading investments to reduce each to 25% of the total value. Use the proceeds from those sales to buy more of the investments that have fallen under 25%.
-Speculate only with money you can afford to lose.
-No one knows how the people elected in the coming years might choose to solve the economic problems the country will face. It might strike them that the quick and easy solution is to take your property— as has happened so often already.(in regards to the benefit of having overseas holdings)
-In what economic circumstances is the investment’s price likely to go down? Are other investments in your portfolio likely to take up the slack by gaining in those same circumstances? What is the most you can lose on the investment? (Usually, every penny you put it into it.)
-If the investment is a mutual fund, you want the fund with the lowest yield— other things being equal. Any dividend paid by a mutual fund simply reduces the price of your shares by a comparable amount— so that the dividend is coming out of your own pocket. And even though you gain nothing from the dividend, it adds to the current year’s taxable income— causing you to pay taxes on something that doesn’t profit you.
-Do you interpret the widely known information in a different way from what most people believe?
-Always define carefully what you are trying to achieve. You must have an investment plan.
-To enjoy some of your wealth while you’re earning it, budget a sum of money that you can spend each year without concern for the consequences.
-When in doubt about an investment decision, it is always better to err on the side of safety.
-Even if you’re convinced that someone is doing very well, he may be doing it by taking risks that aren’t right for you.
-Don’t do in the investment world what you wouldn’t do elsewhere.
-Next year’s Dow Jones Averages will reflect billions of separate decisions— which themselves are the outgrowth of the desires, intentions, and actions of hundreds of millions of people of all kinds, not just investors.
-When your precious wealth is on the line, you can’t rely on anyone to foresee the zigs and zags of the markets.
-No event has to happen. And a sure way to lose what you’ve accumulated is to risk the funds that are precious to you on the idea that some event is inevitable.
That last point is very critical. I know that there has been a lot written about how f*cked the money policy is and the debt and printing money and the shit fiat system and how we should move to gold or China will call in its chips….blah blah blah. It may be right,it may be wrong. It could happen 30 years from now it could happen in 7. WHO THE F*CK KNOWS?
But until that time, it would be foolish not to soundly invest in a way that will reap you profit from your savings.
*Another good book is from Remit Sethi. Simple and sound advice.