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As an experienced investor and financial adviser, I’ve seen firsthand how many people are blindly putting their faith in others to their own detriment. Those you see on TV often have a web site, product or service they are promoting. Their effort is disguised as advice. They could also have money invested in the stocks they are speaking on or, conversely, plan on shorting them. Since they hold such influence, they benefit one way or the other based on manipulating you. I have no agenda other than the indirect benefit derived from the fact that everything affects something else. Since I see life as interconnected, what I do for another, I do for myself. In the post-crash world, when some people have lost 40 percent or more of their money, we can’t afford to be like sheep in the herd.
It may be tempting to use disproportionate amounts to buy shares when stocks seem to be upward-bound, but that is a mistake.
This may have worked out great for you in the months leading up to October ’08, but today the safest choice is spreading your investments (diversifying) among several sectors of the industry after searching for companies with: Solid management, great products or services, low debt, positive cash flow, progressive sales, earnings, dividends and the lowest P/E multiple for that asset class.
I employ a multi-faceted, four-point investment strategy.
A savings/spending account for emergencies, expenses or recreation:
This savings account has a very low interest rate, which is why another percentage of my money I have in a Money Market Fund. This is like a savings account, except it is in my brokerage account, which makes buying additional shares easier and yields a slightly better interest rate. You should contribute up to 25 percent of your surplus annually , or an appropriate amount based on your lifestyle and expenses.
A retirement account:
This should consist of two parts: 50 percent in an S&P500 Index Fund and 50 percent divided equally in three long-term growth companies. I have Proctor and Gamble, Ford Motors, and the SPDR Gold Index fund in my portfolio.
(Since, with a Roth IRA you can only contribute $5,000 annually, that is what I do, combined for the above. I would also take advantage of a 401K, but my job does not offer dollar matching. This could be considered a total 25 percent invested of your total surplus, split between A and B.)
A discretionary account:
These are companies I think are showing a faster growth rate than the above for the short term. I frequently watch the markets and sell when the prices peak and buy again when they go low and repeat the process. For me this is better than just “buying and holding” because I attempt to reduce the losses and increase only the gains. I will often change the companies I am buying and selling based on their performance. The reason why many people advocate buy-and-hold investing is because, theoretically, that approach would continually drive the market up as more and more people buy in. But that is not the way it really works. By nature investors are far too ambitious. You may want to invest another 25 percent of your surplus here.
A higher risk, speculative account:
This may include new companies I believe in for one reason or another, or call options for a fast gain on something I think may be over-valued and unsustainable. You could place up to 25 percent in this area as well, contributed annually and compounding interest across all four points of this strategy, three of which are investing, one of which is savings/spending.
How much money have I made with this strategy? 20-30 percent over the years. Most people claim to gain more than they really do by not considering commissions, losses and time frames. If you follow a similar strategy as I have outlined here and evaluate money lost (not just gained) when calculating your performance, your results will be more accurate and you can subsequently make adjustments accordingly, seeking to further increase your gains.
Do your own research, and don’t put too much stock in others.