I am retired and take educated guesses on all things financial.

April 08, 2008

April 9, 2008: 10 Principles of Investing - revisited

I have always enjoyed reading older financial publications. Many are humorous as their seemingly infallible predictions supported by convincing arguments and a truckload of supporting evidence are completely wrong. Some reach a conclusion that in hindsight proved to be somewhat accurate - using suppositions and assumptions that were so wrong that I wondered how they got the result close to correct. Then, there are others that stand the test of time to a large degree.

An old chestnut entitled 10 Principles was penned by H.D. Vest, who was a talking head pioneer and financial advisor to the masses in the 1980s. With a tweak from me, here is his list:

10 Principles of Successful Investing

1. Self-discipline, not income level, determines your ability to save money.

2. If your "safe" investments do not outpace true inflation, they are not very safe.

3. Don't try to time the stock market to succeed as an investor. Those who try usually fail.

4. Your investments should be part of an overall investment strategy designed to achieve your specific financial objectives.

This requires a brief explanation. Vest was referring to the fact that many individuals look upon investing as a day-to-day event. This is in error, as investing should be viewed as a deliberate process, with set goals, measured in years, not days,weeks or months. College funds, retirement funds, estate planning, insurance, real estate and other investment items require specific, executed strategies. Working in concert, all financial moves should form a coherent, efficient financial plan.

5. Substantial growth of assets requires exposure to stocks. The percentage of stocks in your financial plan should be appropriate for your risk tolerance and financial realities.

6. The most efficient portfolios are properly diversified, both within and amongst asset categories.

7. The most successful investors are patient, long-term investors. This is the only way to take full advantage of the twin miracles of time and compounding.

8. Investing should be as systematic as paying a monthly bill.

9. You should take a holistic approach to your financial life, recognizing that tax strategies, insurance needs and investment goals are interrelated.

10.Unless you have the time and aptitude to go on your own, you should consult with a knowledgeable tax and financial advisor you can trust. Make sure the advisor is not solely transaction oriented, and that he or she has your best interests at heart.

As a timely conclusion, Vest notes "most people fail to educate themselves about investing and thus resort to investing by fear".

One can elaborate or dismiss some of the above principles revived from a dusty book. My thought is that the above ten items make more sense in total than most of the daily rants from the business media today - and tomorrow.

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