Investing Is Simple!…
So, what’s investing in it’s simplest form? The dictionary definition is:
‘To put money into financial schemes, shares, property, or a commercial
venture with the expectation of achieving a profit’.
I think that’s a pretty good explanation! The BIG question, though, is what is that ‘profit’ for?... What’s YOUR definition of success?
I’m going to drop in a few quotes from a chap called Warren Buffett. You may have heard of him? If not, he’s one of the most successful investors the world has ever seen and his approach is remarkably simple.
Why Bother?…
And what’s the point of doing this? TO MAKE MONEY! And why would one want to make money? That might sound like a silly question but what would your answer be? How about one of these?:
So I know I have enough money to live on in the future.
To help my (insert family member) with their education or their first home.
In case something happens to me, I want to know my loved ones will be provided for.
I know how damaging inflation can be and I want to protect against it.
Because what the bank gives me is rubbish!
In my view, there needs to be a point to investing. You need to know why you’re doing it. If you don’t how do you know what success looks like?
For most people, certainly the ones I deal with in my work, the reasons for investing are, very much, along the lines I’ve just set out. They’re ‘normal’ reasons for ‘normal’ people. Make sense?
So Many ‘Experts’!...
I wish I was an expert in investing. Perhaps you do to? If we were experts, we’d make loads of money and life would be great. The truth is, there are no experts. None!
You see, what experts try to do is predict what’s going to happen in the future and they make guesses based on those predictions. Sometimes they’re right and sometimes they’re wrong. To me, it’s casino stuff.
Watch or listen to any news broadcast and they’ll wheel out the economic editor or some investment ‘guru’ who’ll tell us all what’s happening in the world of investment markets. It’s all very interesting.
“Forecasts may tell you a great deal about the forecaster; they tell you nothing about the future.”
That’s fine but where I get a little bit annoyed is when they talk about things AFTER they’ve happened. Post-mortems are easy. They speak with such confidence about what’s happened and how easy it was to predict.
if it was so easy, why do so many ‘experts’ lose vast amounts of money when markets crash? If experts were as clever before the event as they are afterwards, I’d have more belief in them (and we’d all be much richer!).
Invest of Speculate?...
Investing should be a process. Speculating should be fun. Getting the two mixed up often leads to trouble and I think this is one of the things people tend not to realise.
Too many people chase investment returns for the sake of it. Feeling very pleased with themselves when they make money but going a bit on the quiet side when things don’t quite go to plan.
“You’re dealing with a lot of silly people in the marketplace; it’s like a great big casino and everyone else is boozing. If you can stick with Pepsi, you should be OK.”
Once you’ve got a well thought out process, stick to it and don’t listen to the ‘noise’ of the financial markets and the media.
The reality is, if you set things up in the right way, periodically review things and, most important, leave things alone, you should have a happy experience!
Being Sensible…
Let’s look at some of things one might consider when investing. These should form part of that ‘process’ I was talking about earlier.
Spread Things Far & Wide (Eggs in One Basket)…
Don’t have too much in a particular market, sector, country, etc. Don’t own enough OF ANYTHING to make a killing but never own enough to get killed!
Keep Costs Low…
Costs are the arch-enemy to long-term growth. Keep them as low as possible.
“Performance comes, performance goes. Fees never falter.”
Don’t Get Too Excited!…
It’s easy to get caught up in the battle but keeping a calm head can pay more dividends than investment performance.
“The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.”
Take The ‘Right’ Amount of Risk…
You certainly need to take SOME risk but this should be balanced again what you need your investments to do for you and what’s going to keep you awake at night.
To find this balance, you should own the right mix of ‘riskier’ investments like stocks and shares and ‘safer’ investments like cash and bonds.
“Risk comes from not knowing what you’re doing.”
If you understand the risks you’re taking, you’ll have a much better chance of managing that risk. It’s when people don’t understand it when they get scared!
Tying it All Together…
If you follow these simple rules, you should find yourself with an approach to investing that delivers the results you NEED but it should also give you a journey that’s reasonably comfortable.
Certainly, you might need some help (that’s what we’re her for) but I hope I’ve made it clear that things don’t have to be overly complicated.
“There seems to be some perverse human characteristic that likes to make easy things difficult.”
I hope this has been useful? Nothing’s certain in this life, least of all investing. Do sensible things and you’re giving yourself a good chance of success!
Until next time…