Beginning Investing

7 hard earned lessons to use

There are all sorts of people who want to give you investment advice, aka sell you something. Why? So they can earn a commission or profit from you investing with them.

Experienced in life and a former business owner/appraiser. Have nothing to sell you and not giving hot stock tips. Frankly happy to be a full time employee now, but would like to start a second business.

Do Not consider myself a great investor, definitely am Not a day trader and my predictions are average. Have learned from hard knocks.

These are good advice and rules I have learned over the years:

1) Spend Much Less than You Make

Wealthy people often lived for free or on 10% of earnings to save enough to start a business. They did this for years to get started. The wealthiest people I know often drive old cars and wear clothes too long. They only owe on their business assets, and their home may even be paid off.

2) Have a Rainy Day Fund

You don’t know when you or family will be ill, have a major repair to your home or car, be laid off, fired or the business shuts down. Have paid 6 months of bills from savings to get through. Have enough for 1 year’s worth of bills outside my retirement accounts.

3) Start Investing Small

Put money in the company 401K, especially if offered matching funds. I started at 8% on my current job and increased the percentage with every raise. If had more income would save more.

Second don’t buy one investment with all your money. Only invest some on each idea. Often start with a third and see if it is working.

4) Learn Value before You Buy

My best investment has been my house. Being a real estate professional identified good neighborhoods first, then found houses to look at. Originally wanted a 2 - 4 family house to live in, but prices were much higher than the cash flow justified.  Was cheaper to buy a single family house.

Bought at the bottom of the real estate market when few would consider buying, and bought a working short sale 10% under market value. Yes it took 6 months to close. But bought for 2/3 of original owner’s price.

My house is worth 60% more 4 years later.

5) Diversify Investments

Have good savings in cash at bank. Much more in 401K, and equity in my home. Have paid off 30% of the mortgage in 4 years. Goal is to pay off mortgage before retirement.

Am not adverse to holding cash. Especially when stocks, bonds and real estate seem over priced. Can be patient until a new opportunity shows up.

Cash is a safe refuge when the market is going down for an extended period. There will always be recessions in normal economies.

Am willing to sell and sit out the drop until the market starts rising again. Just don’t stay out forever. Look for the opportunity to get back in.

6) Do Not Pile in Late to a Trend

There have been good ideas I have missed. However did not compound the problem by buying at a high prices hoping some fool comes along to pay more. Would wait for a pullback and buy at a better price. Or would just wait for the next opportunity.

The secret to successful investing is buying at the right price. Not necessarily when everyone else thinks it is a good idea.

Beware the phases “This time it is different” (it is not) and “_____ always goes up” (no, they drop too). One investment made by my advisor is a non-dividend stock that is actually losing money. The commodity is way under trend and the company is doing a good job improving productivity. The market is too busy overpaying for dividend stocks to see the value. My advisor wants to be positioned for the future recovery and is looking for the opposite of the late trend.

7) Educate Yourself

Best investment is good books and classes. Pay to take classes out of my pocket to further my career and knowledge. Does not have to be for a degree either.

Find people or groups who invest in what you are interested in. You can learn a lot from like minded people.

These tips are not all you need to know. In fact am still learning, and hope you can teach me something too. However they will make the rough seas of investing smoother if you are humble enough to apply them.