Rethink Your Investing
Investing can be simple if approached with a fresh perspective; we are conditioned by Wall Street on how complicated and complex investing is. To be a successful investor you need a few things; (1) a 9th grade math education, (2) an understanding of leverage, (3) some street smarts or common sense, (4) an understanding of risk and how to manage it, (5) understanding of the different types of investments available, and (6) understanding of how taxes work.
The purpose of investing at its simplest form is to achieve financial freedom, or to become wealthy. I use both of those terms synonymously, the definition of financial freedom or wealthy is- to provide an income that is generated passively (not having to work) providing enough income to pay for all of your living expenses. Think about that for a minute, if you had enough money coming in every month without having to work that covered all of your living expenses, how freeing that would be? You have security, comfort, and peace of mind. Most middle class investors focus on growing the value of their portfolio, thinking that a big pile of money making them rich is the answer. The wealthy however take a different approach, which we will discuss, in a future article.
Building a portfolio of investments that provide the income needed to become wealthy can be a daunting task when using a traditional approach, you can pick from stocks, bonds, mutual funds, index funds, options, futures, forex, commodities, derivatives, reits, tips, leaps, metals, real estate, and the list goes on and on. How in the world is the average person supposed to know what the right choice is? Many advisors recommend a well-diversified portfolio of mutual funds, such as large cap, mid cap small cap, emerging market, income, and foreign funds; the problem with this approach is that under all the fancy terms you are still heavily weighted in stocks and only in products sold by Wall Street.
Using your street smarts or common sense answer these questions.
1). When you purchase a stock, bond, or mutual fund does your stockbroker get paid no matter what happens to the investment?
2). If that investment is a looser and you decide to sell it, are they paid again?
3). Have you ever been able to purchase a stock or bond at a discount or do you pay what everyone else pays?
4) You insure you car, house, and boat, what insurance do you have on your investments?
Watch for part 2