Investing for Lasting Prosperity

The Dow and S&P are in record territory and most patient investors have recovered their losses from the Great Recession.  Smart investors, who kept putting money in throughout the dip, have been rewarded handsomely.  People who panicked and pulled their money out of the market, recorded huge losses and then missed the recovery.  This is what separates investors from amateurs.

Invest Before Spending

Spend or Invest?

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Most rational people realize they need to save and invest part of their income, but very few do it on a regular basis.  There are lots of reasons why people spend all of their money, but the result is always the same.  People who fail to save will always live paycheck to paycheck.  It’s important to dedicate at least 10% of your net income to your future.  Invest before you spend any money or pay your bills.  Otherwise, your paycheck will disappear and you will have earned nothing for yourself.

Invest with Confidence

I have been investing for 27 years.  I have seen Black Monday, the Asian Currency Crisis, the Dot-com Bust, the Flash Crash and a couple of recessions.  I am still confused, confounded and misled by the market, just like everyone else.  The difference is that I stay focused and invested, instead of panicking.  I would have loved to have been out of the market during these downturns, but I wasn’t.  So, the only logical thing to do was to keep investing and profit from the rebound.  Maybe, I will predict the next big downturn and move my investments to a safer location.  But, I won’t be doing it in a panic, after the market has crashed.

Invest with Patience

One of the hardest things for me to learn as an investor was how to have patience.  The markets and investments never seem to do what they are supposed to, especially in the short term.  There are years at a time when the market is overvalued and people are buying overpriced stocks in a frenzy.  There are times when good companies and industries have fallen out of favor.  There are times when people are too scared to invest, while stocks are a bargain.  Most important, there are companies with good earnings and a low stock price.  Over the long haul, the ups and downs average out and the stocks of good companies will go up.

Invest with Intelligence

Opportunities come quietly and they are often missed by those investors who are reactionary.  No one comes on the financial news and shouts, “Google and Apple are going way up in the next five years.”  They only come on TV after the fact and act like they knew it all along.  Since there is no crystal ball that can predict the next Wal-Mart, investors need a reliable method to separate the future winners and losers.  I prefer good fundamentals to hot tips and technical indicators.

  • Revenue Growth (> 10%)
  • Return on Equity (> 15% )
  • P/E Ratio (< 10:1 )

The Bottom Line

The bottom line is that anyone can invest part of their income and everyone should.  There are an unlimited number of fears and excuses, none of which will make you wealthy.  Invest some of your income for yourself and your future.

“The individual investor should act consistently as an investor and not as a speculator.”

Benjamin Graham – American Value Investor

Recommended Reading

Don’t Quit Your Day Job – Driving Future S&P 500 Closing Prices
Invest it Wisely – The Difference Between Saving and Investing
Money Counselor – Financial Advisor or Huckster?

5 comments to Investing for Lasting Prosperity

  • Well put! Although I didn’t feel it at the time, I’m very glad to have lived through the Great Recession of ’08. Never again will I look at “risk” the same way. When they say you could lose money, its very real and it could happen. This has taught me to pay more attention to metrics that indicate safety rather than simply investing blindly based on what the media proclaims.
    My Money Design recently posted..Using the Dividend Payout Ratio to Help Evaluate StocksMy Profile

    • Thanks for Stopping By.

      I was kind of nonchalant in my post about losing a big part of my portfolio, but it really does hurt. There is also a big risk of depositor’s funds being confiscated, like just happened in Cyprus. Unfortunately, the Fed has made it nearly impossible to get any reasonable return from banks or bonds. It’s kind of financial minefield right now.
      Bret recently posted..Cyprus Banks Seize Customer DepositsMy Profile

  • Thanks for recommending my “Financial Adviser or Huckster?” Bret. Staying patient when stocks are crashing is especially tough for those in hopes of retiring relatively soon. The stress of watching one’s nest egg diminish by half is enormous if you’re approaching the point of using the nest egg to buy groceries and gasoline. This is why I’m an advocate of getting mostly out of equities and other risky assets–unless your nest egg is large enough you can afford to lose a portion–as retirement approaches.
    Kurt @ Money Counselor recently posted..Tax Panic?My Profile

    • Any time Kurt.

      I’m still 18 years away from retirement and I’m definitely more aggressive than I would recommend for most people my age. I have a lot of experience in the markets and a high tolerance for risk (and pain). Plus, I need to yield around 8% to meet my investment objectives. That doesn’t happen with CDs and Treasuries.

      As I get closer to retirement, I will start shifting more and more money out of the markets and into safer places. Investors can purchase asset allocation funds that do this for you automatically.
      Bret recently posted..The High Cost of Having ChildrenMy Profile

  • […] Adviser or Huckster” in his Recommended Reading at the end of his post, “Investing for Lasting Prosperity.” Thanks […]