BACK TO BASICS
Until mid-March, it all seemed so easy. Nobody needed a full service investment professional, everybody had all the information they needed on CNBC-all you had to do was buy something with a "dot com" on the end of it, and you could make big money.
Probably 90% of all people investing would be better served by finding a good full service investment professional somewhere, and factoring in their advice in their own judgements. This became a lot clearer in mid-March, when Wall Street once again proved that it is a two-way street.
Now that we have all been doused with a bucket of cold water, perhaps it is time to get back to the basics. The following are our "Taking Care of Business" suggestions for investors.
1. Now is the best time to start a retirement program. There are always people ready to give you all sorts of reasons why you shouldn't invest in the stock market now. "The market is too high and ripe for a correction. The budget deficit is out of control. Interest rates may go up." But over the long-term, these doomsayers are wrong. Yes, this is a troubled world today. But it has been troubled throughout history. Nevertheless, based on the Standard & Poor's 500 Index, the stock market by itself, unmanaged, has gone up more than 70% of the time. Hopefully, with professional help you can further improve those odds.
2. Time, not timing, is the best strategy. Having planted the seeds in the field, the farmer does not go out every couple of days to see if the seeds are still there. Likewise, it takes patience to be a successful investor. If you are making good decisions, time can be a friend. The more you have of it, the better off you are.
3. Investing for the long-term is the key to success. Traders come and go; they blow hot and cold. But long-term investors making good choices and staying in the market are the real moneymakers most of the time. For example, $2,000 invested in an IRA every year for 30 years and earning a steady 10%, grows into a hefty $361,887 retirement nest egg.
4. Over the long-term, fixed investments probably won't get the job done! In fact, they are less than a 50/50 bet. This is the toughest rule of all, because of the temptation to go for the personal safety of a "locked-in" return. But statistics and history disprove this myth.
5. Keep it simple. If it gets too confusing, walk away. Remember, it is your money. You're not stupid. If you don't understand what the person is telling you, THEN DON'T FOLLOW THE ADVICE. You don't have to be an expert, but you ought to have some grasp of what is happening.
6. Investigate before you invest. This is a fundamental phrase from the New York Stock Exchange. Always know what you're investing in before you invest in it.
Well, there you have it, six simple suggestions that, over my 30-some years in the investment world, seem to make good sense. As stated earlier, they are deceptively simple, but the truth is that most investors violate one or more of the ideas frequently enough to get themselves in trouble.
Despite what has happened in the market over the last month or so, long-term investing still makes sense, and I believe the odds are still in favor of long-term investors. Unless your heart just can't take it, the market, in one form or another, is probably a suitable place for most people. That it is often abused, and people are often confused, is really not the market's fault. It is our own fault. As our friend, the cartoon character Pogo, used to say, "We have met the enemy, and he is us."
This is a good time for everybody to pick themselves up, dust themselves off, and stop being their own worst enemy. Applying a little common sense to their long-term investing may increase their odds considerably. Over the long-term, we will probably fare well investing in the good companies that make up this great country, and in some cases, the rest of the world as well.
(Tom Butenhoff is a First Vice President with J. E.
Liss & Company in Milwaukee. The views are his and not necessarily
those of Liss Financial Services or the Job Connection/Hiring
Network.)