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ARTICLES: INVESTING IS HARD
Are you like me, regularly riffling through junk mail on the latest "get rich" scheme? Is your email
account spam filter working overtime? I recently received an email from a reputable website that I've done stock
research through claiming "secrets to 50% yearly gains;" I read it, it was a solicitation.
I find it frustrating to get these messages, NOT because they are anymore difficult to throw out or delete than
the other junk, but because I (like you I suspect) know I need to SOMETHING with my money and don't want to screw
up!
I went to a seminar featuring Steve Forbes, former US Presidential candidate and Editor of Forbes Magazine, Phil
Town, stock market millionaire and author of Rule #1, one of the best selling investment books on Amazon.com in
2006, and Peter Lowe, successful sales person and motivational speaker. The three spoke back-to-back-to-back. Mr.
Forbes spoke on many things, but extolled the excellence of putting a percentage of every paycheck into mutual funds. Mr. Town told how he was taught how to get rich
in the stock market and pitched us on the formula he apparently used, which involved buying individual stocks and jumping in and out of the market based on trend research (not to mention other techniques, like selling options).
Finally, Mr. Lowe spoke of how money doubles in any market but how that doubling is reduced by taxes; without actually
telling the audience how, he recommended people invest in tax-free or tax-deferred investments (I assumed he meant investments like 401ks and Real-estate 1031 exchanges). The
moral of the story is that at one seminar, in the course of a few hours, I was encouraged to implement three very
different investment strategies. What is one to do?
To compound the problem, especially in California, we are surrounded by people with their heads held low in shame
because they didn't buy an "over-priced" house in 2003 or 2004 but rather stayed in the rental market,
building up a larger down payment, waiting for the housing market bubble to burst, only to watch prices increase.
If they only would have entered the market during 2003, and sold in 2005, they would have realized tremendous gains.
Instead, they became cautionary tales for renters, and they are cautionary tales for anyone and everyone who is
so conservative with one's money that average, large or extraordinary gains are missed. At least those people are
watching the market. Many people don't "have the time" to research investment strategies, so their money
sits in their 401k plans or the banks waiting to be properly utilized.
What are we to do? Do we go buy real estate on the ever-growing foreclosure market? Do we buy penny stocks or tax-free
bonds? Do we bury our heads in the sand and hope social security survives until we retire? NO! We each make a plan;
a plan that takes into account retirement, college funds and braces, and all the major purchases in between.
Steps:
1. Take an inventory of what we each have today (401k plans, other retirement accounts, investment accounts, home
equity, etc.) sometimes called a personal balance sheet.
2. Write out how much money we need in the retirement years (what age will we be when we retire, will we have a
mortgage, will we be paying for children's college tuitions?).
3. With the amount we want to live on, perform a "present value" calculation to determine how much you
need on day one of retirement to provide that lifestyle.
4. Now we know how much we have today, and how much you need on R-day (retirement day), we add in the major costs
along the way on a time line (like college, braces, purchases of homes, etc.).
5. Based on the above, we know roughly what is needed in the future and use a "future value" calculation
to determine what to sock-away on a regular basis to pay for those future items.
Those are the basic steps, now comes the art. We need to figure out what are the investment vehicles that fit our
interests, lifestyle and abilities. I know of people who enjoy working on old homes; for these, real estate maybe
a great investment. Others are involved with publicly traded companies, enjoy staying abreast of the market and
may be best suited, at least partially, to invest in individual stocks. For the majority though, choosing an investment
advisor will likely be the best solution. From there, understanding how money is taxed and choosing vehicles that
mitigate tax consequences is key.
Ending the frustration starts
with a plan.
We are happy to sit down and
help you through these steps.
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