Friday, October 8, 2010

The Sadness of Middle and Lower Class Investors

Those who jumped out of the Stock Market when it was in the 7000 to 8000 range are likely very sad about doing that or having to do that right about now with the Dow at over 11,000 as I write this.  The problem with many investors is that the lows scared them out and then over the long haul they have lost money. However, many people simply sold non-dividend bearing stocks and moved to all dividend bearing stocks in order to make staying invested in stocks worthwhile. Also, those who have studied the Great Depression also know that tax free municipal bonds can be useful to at least 40% of one's portfolio during times like these. Municipal bonds tended to be the most dependable of most investment incomes during those times as well as now. That is not to say that there is not risk in almost any investment these days, especially real estate. In fact, it is likely true that there is no longer any really safe investment at all. However, we still have to live and we still have to prepare for retirement despite this insecurity. So, spreading your risk throughout many different sectors buys you the most long term security. So, I believe the way to go is municipal bonds, stocks and real estate as long as you understand "location location location" in regard to real estate.

So, for me, watching those who didn't understand what was happening and sold their stocks and then had their house foreclosed demonstrate the saddest part of all these last few years.

For those of you who are young enough to recover from this sort of thing just remember, "We always learn much more from our mistakes than from our successes". So there is always hope!

When speaking of investing a "Conservative Investor" actually has nothing whatsoever to do with politics. Instead it means that this is a "Safe" investor who minimizes risk in his or her investments, as opposed to an "aggressive" or "risky" investor who often loses everything within a few years. Day traders often wind up in this last category.  I prefer the safe investor category because after you are 50 or 60 years of age you really can't afford to lose everything and recover like you might if you were 20, 30 or 40 years of age. So, "Safe" investors put research well whatever they invest in and then leave their money there  5, 10, 20, 30, 40 or 50 years as long as the return on the investment is good both in dividends and valuation.  So for example, a $50,000 investment in General Motors  in the 1950s might have been worth $3,000,000 to $5,000,000 around the year 2000. So, in this sense long term investing in the right blue chip stocks might be useful even though within any 5 to 10 year period like we have just had the stock might gyrate all over the place up and down. This is one of the reasons that if you are a long term investor and you own stocks it might not really be worth your while to own stocks that are not dividend bearing. Now, remember there are many many different investment strategies that work for different people regarding taxes, aggressive and safe investing etc. However, each person must decide how to invest. For a beginning investor in their teens or twenties the usual rule of thumb is to always save at least $3000 in savings before you invest anything. So you make sure you have the $3000 in savings and then anything over that you begin to invest with. The other thing people tend to do that are safe investors is that they don't borrow money for anything unless it is for a car or home or other real estate. And if they can afford to pay cash for any of these things they do. The reason for this is that the majority of people lose most of their money that could be invested by using charge cards (credit cards). Whereas successful people usually use something like an American Express Card that they always pay off monthly but don't generally use any credit cards that they don't pay off monthly. In other words if you charge $500 on an American Express card you pay that off completely that month. If you want to ever be rich in a safe way these are some the basic rules to follow.

However, like I said if you are under 40 there are many other risky to very risky strategies. I'm not interested in any of them because I am 62 and safe investing is all I'm really interested in now.

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