investingfromtheright

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

February 28, 2009

March 1, 2009: Safety First For Your Financial Future

I have be visiting some old financial and political publications from the 1930s through the early 1980s. One author, the late Libertarian and financial guru to many in the 1960s-80s,Harry Browne, was an eloquent, substantially self-educated man. With interests as varied as politics, radio host, opera, gourmet cooking, Swiss banks, politics and writing on all things financial, he could be described as a Renaissance man. Yet, he was generally ignored by many in the mainstream press and financial circles as not worthy of attention,let alone respect.

The following is a representative list of rules for financial safety written decades ago by Mr. Browne but still worthy of comment during the massive change occurring in our country.

Here they are:

Your career provides your wealth. You will most likely make far more money from your business or profession than from your investments. Don't take risks with complicated
schemes in the of multiplying your capital quickly. Your investment plan should be aimed at preserving capital from investment loss, government intervention or mismanagement.

Don't assume you can replace your wealth. Markets and opportunities change, laws change. Conditions today may be considerably different from what they were when you built the estate you have now.

Recognize the difference between investing and speculating. Money that is precious to you shouldn't be risked on a bet that you can outperform other investors.

No one can predict the future. Events never unfold as we were so sure they would.

No one can move you in and out of investments consistently with precise and profitable timing.

No trading system will work as well in the future as it did in the past. Somehow, "infallible" systems never come through when your money is on the line.

Don't use leverage. When someone goes completely broke, it's almost always because they used borrowed money.

Don't let anyone make your decisions. Many people lost their fortunes because they gave someone (a financial advisor) the authority to make their decisions and handle their money. If you put money into an account for someone else to manage, it must be money you can afford to lose.

Don't ever do anything you don't understand. Don't undertake any investment, speculation or investment program that you don't understand. It's better to leave you money in Treasury bills that to take chances with your estate.

Don't depend upon any one investment, institution or person for your safety. No one investment is good all the time. We live in an uncertain world and surprises are the norm. You must not risk the chance that a single surprise will wipe out a large part of your holdings.

Create a bulletproof portfolio for protection. For the money you need to take care of you for the rest of your life, set up a simple, balanced diversified portfolio. You can achieve a great deal of diversity with a simple portfolio.

Speculate only with money you can afford to lose.

Keep some assets outside the country which you live. Don't allow everything you own to be where your government can touch it.

Beware of tax avoidance schemes. Huge losses can come from from investments that provided special tax advantages but did not make economic sense, and from tax shelters that were disallowed by the IRS - incurring penalties and interest on top of the liabilities.

Enjoy yourself with a budget for pleasure. Your wealth is of no value if you can't enjoy it.

Whenever you are in doubt about a course of action, it is always better to err on the side of safety. If you pass up an opportunity to increase your net worth, another one will be along soon enough. But if you lose you life savings just once, you might never get a chance to replace it.


Excerpted from Browne's writings in the 1970s, they appear timeless today.

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