Quote:
Originally Posted by RKDinOKC
Saw a documentary about Arnold Swartzenager some years ago. Probably about half way thru his movie carrier. Most of Arnold's fortune was made from his investments not the movies he was in. Arnold commented that he invested in high risk investments. Not total risks but the kind where only one in ten had to be a profit. Joe Weider whom Arnold help start his gym equipment by investing in him said that Arnold invested what he made from body building and always had a 5 and 10 year plan. Even before he won his first contest.
He invested in property, products, and people not the "market."
To me the market (when invested conservatively) is just a way of keeping your money's purchasing power. It will earn basically the increase in the cost of living. So what you can buy for $100 saved today will most likely cost the $400 that $100 has grown to at retirement.
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For 95% of folks who invest, this is probably true. There's a reason for that. Most folks think they know what's going on or know company XYZ, so they pick particular companies to invest in. You can never know what a company will do in the future (Just ask the Enron folks). I read one of the dummies books year ago, investing for dummies or investing in the market for dummies or something like that. The guy in the book promoted really knowing a handful of companies (5 or 6, I think) and investing in those. The problem is that you can't REALLY know any company so you are speculating and not very diversified. But if you invest in an index fund (whether mutual fund or ETF that tracks an index) you are investing in potentially hundreds or over 1000 companies. So if one or 5 go tits up, you are covered by the others.
Besides being diversified (by owning large cap growth and value, small cap growth and value and all 4 of those split evenly between domestic and foreign, you are pretty thoroughly diversified. You can get all of those in low cost index funds. Not only that, but if you watch the trends, it's not unusual to see domestic go down and foreign go up or large cap go down but small cap go up, and so on. These trends balance out your risk and return. By owning the various value indexes, you make more than by owning the growth, but by owning both together, you actually don't increase your risk.
The number one issue that causes most folks to make substandard amounts of return however is by investing emotionally. Invest for the long term. THe market tanks and people wail and gnash their teeth because they "lost money". No, you haven't lost any money unless you sold your stocks. But that's exactly what a lot of folks do. They watch a market fall, and sell because they are afraid of losing money. They then wait for a while to make sure the market has fallen and watch the market go back up (waiting for another dip, no doubt) and then when they are sure that it's going up, they buy back in. The problem with what tactic is that we all know that you should buy low and sell high, but they just sold low and bought high. When the market tanks, leave your sheisse alone. The market will go back up in a month, or a year or 3 years, and 5-10 years later, you'll be up from where you were. Or, you could sell when it tanks and buy back in after it's been going up for a while and after the market has been going up for a few years, you will hopefully have made back the money you lost by selling low and buying high.
Don't be an emotional investor.
Pay off your debt (or don't get into it).
Have 3-6 months of your monthly expenses in "savings" just in case.
Invest in diverse assets and leave the emotions out of the investing.