In the Preface of this 7-part series of blogs, I explained that my daddy was always a salaried employee, yet by following seven rules he went from being recently out of college to a millionaire-plus twenty-five years later. My mom never worked, and they fully-funded the education of their two sons. He passed away in 1980.
I suggested that with the 2010 New Year ready to begin, this would be the perfect time for each of us to initiate Daddy's 7 Rules for Securing Your Financial Future.
Here, stated again, are the rules:
- Save at least 10% of your gross income
- Know about, understand, and use the principal of Dollar Cost Averaging
- Intellectually know that you don't have a profit or a loss in an investment until you sell it.
- Secure your family's well-being and your retirement income stream with life insurance annuities
- Pay off the mortgage on your home as quickly as you can
- Accumulate a portfolio of income producing real estate
- Diversify
HERE'S NO. 3:
(STOP WORRYING) YOU DON'T HAVE A PROFIT OR A LOSS UNTIL YOU SELL
One of the reasons financial advisers have clients is because most investors don't want to have only themselves to blame if they make an investment mistake.
They want to be able to hold someone else responsible if they buy a dud of a stock, or they make a big investment only to see the stock or the market or both take a dramatic discount a few days later.
By switching that responsibility to a financial adviser, they get to blame him for the screw ups. Heck, they can even fire him if he does, or give him a second chance.
But there are two parts of this equation that are often overlooked. Like it or not, it is not in a financial adviser's best personal interest for your account to remain stagnant. For him to make money, your account has to have activity.
Turning the assets in an account too often is known as churning, and churning is illegal. The problem is, it's hard to prove unless it is blatant. So churning is going on all of the time.
And second, those who earn their fees for representing you by sales commissions rather than by charging you a management fee, often limit the majority of the products they sell to those that pay them the highest commission.
So here was my daddy's logic. Buy investments where management has a good track record; where, when possible, the company manufactures, owns and sells tangible products, and then just hold your position.
If the stock goes up, great. If it goes down and nothing about the company has changed, buy some more to average your price.
I'd say to Daddy, "Your Georgia Pacific took a hit today." And he'd say, "What do I care? They've still got trees in their forests and builders still need lumber. The only time I'll care what the price is is when I decide I need my money for something else, and that won't be anytime soon." Then he'd give me his toothy, all-knowing grin.
Interestingly, Daddy was right.
When you buy an investment, you have to have the stomach to ride out bad times and not be tempted to sell in good times. If you don't have that temperament, for your own mental well-being, you will either 1) need an investment adviser or 2) have ready access to a coffee can buried in your backyard.
Tomorrow we'll discuss annuities, and hopefully settle this debate for you once and for all.
BILL CHERRY, REALTORS
DALLAS - HIGHLAND PARK
Our 45th Year
214 503-8563
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