There are three objectives, and I am going to list them in the order of the most important
- Your primary objective is to make certain that every dime and every dollar you accumulate is safe from loss and, as much as possible, from exposure to taxes. We call this your Safe Money.
- Your second objective is to pay as little fees as you can for the services of stock brokers, mutual fund management fees, insurance agents’ commissions, and independent account managers, as well as attorneys and accountants.
- Your third objective is not to make an investment for the sole purpose of attempting to offset damage inflation may do to the buying power of your savings – your net worth.
There are many ways your assets can be at risk. Losing even a small part means you will probably have to earn back more than the amount of the resultant just to be even.
So what are some ways your money may not be safe?
You don’t have liability insurance coverage, and a law suit is ruled in favor of the plaintiff, and the award is for some or all, or even more than all of your unprotected savings
- You and your spouse are divorced, and your assets are split by order of the court
- You make a risky investment, and you lose part are all
- Or you put your savings in an uninsured account, and that bank, trust company, or the person holding it for you in safekeeping, goes broke.
And the same goes for the brokerage and management fees.
If you begin with $1,000 and the commission for handling that transaction is 3%, the amount that is now available to work for you is not $1,000 – it’s $970. So before your original one thousand bucks can begin to work for you, it’s got to make back that $30.00 but it has to do it with the net investment of $970, not your original $1,000.
And finally, there’s the risk attached to trying to beat inflation.
It is a fallacy that it makes sense to take unnecessary risks to hopefully overcome inflation. While you might accomplish that objective, you might also lose more of the buying power of your investment, should that “inflation fighter” fall in value rather than increase in value.
So while the standard joke that persists about very cautious investors is often stated, “He’s so afraid he’ll lose his money that he keeps it between the mattresses,” sometimes that might have actually had less risk.
Many saw their net worth fall by as much as 50% as a result of the Crash of 2008, the market swirling downward as investors and the financial world learned the massive loses that were occurring as a result of an investment instrument called a subprime loan, apparently led by New York investment firm, Lehman Brothers, and followed by others.
Had they had their money in between the mattresses rather than in the market, the likelihood is that their losses, if any, would have been minimal.
So, again, your primary investment goal is to not lose what you have. Your second objective is to make any and all investments wisely so that your risk of loss is minimal.
And Now that You Know the Objectives, How Do You Optimize Them?
- To accumulate wealth, you have to have a specific, attainable goal and a plan to reach the goal
- You want to evaluate the 401k plans that are available to you, the pension plans, and any plans that your personal investments are added to by your employer or another entity or individual.
- You want to have a significant part of your money and equities in accounts that are readily in case of emergency, including but not limited to, loss of job, accident, medical costs
- You make all investments/savings deposits on the same day of every month, and in the same amounts. This is called “Dollar Cost Averaging.” We’ll talk more about that later.
When you retire, you want to make withdrawals in the same manner, i.e., the same amount on the same day of every month.
If you are willing to invest $500.00 is a personalized plan that, if followed, will likely bring you great benefit with little risk, call me. Better yet, click here while it's fresh on your mind. The Clicker
William S. Cherry & No Company