This will not be a tome on how to invest in equities like Warren Buffett , as he and others have written the book on it , literally. This is the average person with finance and investing background admitting he doesn’t really know as much as he’d like, trying to figure out the day-to-day investment moves , sound bytes , analytics and the psychology of what makes people and markets tick .
I hope the average person learns a little something about wealth creation from this.
I say spiritual because often it seems results and their causes are invisible , ghostly , uncertain and largely payback of our faith in the markets , the capital system and the private sector. You can balance the surprise with the expected , and a dose of patience.
To start with , you have to have some disposable or extra income to put into investments ; get in touch with objectives and expectations and have at it . We may talk more about how you get some initial investable dollars later.
I’m taking more time to read about and invest in the purchase of individual stocks. You’ve heard how difficult that is over time to do well. So you may want to look into who you hire to do this for you , if you do it at all.
The daily gyrations in the market , emotional latest news , opinions, speculation , data , pundits , micro-macro trends. Institutions and critical mass volume can drive the market , and the average consumer wonders what the hell hit them... we’ll talk later about a more recent phenomenon where the little guy , when they band together , can take on Goliath , in a moment in time .
Yet a small and growing percentage is the consumer having more cost free options to trade stocks , more time and more technology , for example Robin Hood , E*TRADE and Schwaab to execute trades.
This fuels the outlets for the emotion and short term trading. You can make money if you sell it for more than you bought it , but what about if you build it and hold it the right amount of time.Many studies show it is unlikely anyone can successfully time the market ie always buy at the lowest and sell at the highest . Day traders , as their full-time job , may have some success. How much is sustainable and who has the time and tools to do it ?
The rest of us need to consider eliminating the noise, accept we cannot time the market, will have decades to invest , optimizing time , compounding and dividend streams to achieve our goals.
You read that 90% of returns come from asset allocation ; the correct and appropriate weighting of stocks , bonds and cash without sweeping changes or moves ; Something that minimizes the emotion, temptation , short term lense and news noise.
Should you wish to take a portion of your portfolio , invest it on your own , it may help to take some time to figure out what it is you’re trying to accomplish and how ,for example , to buy dividend and growth oriented stocks , the popular picks or invest in certain industries or sectors/segments.
Diversification is a common recommended practice achieved multiple ways ; by asset class ( stock , bond , cash) , individual security , country etc . For example, within the stock market the indices such as the S&P and NASDAQ overlap, there is consideration as to how big the company is in terms of its market capitalization as the S&P 500 is market cap weighted where the Dow Jones is stock price weighted .
Behavioral theory and some of the pros suggest to buy in times of fear and sell in times of excess greed.
Other barometers are company earnings , actual growth versus forecast , comparison within the industry, and the macro expectations and relative strength/velocity versus competitors.
As you make your decision on how to invest and or with whom , consider choice, time and effort put into it , the hierarchy of importance in your life ; the trade-offs of doing it yourself and specifically what are your goals, your risk tolerance and your fear of losing a portion of your money and does it bring joy and satisfaction to spend time on these things.
What happens below the surface or out of sight. Particularly , because most of us choose to not devote our lives to re-searching company reports and don’t have access to professional analysts ; and even then take a look at the disparity within the analyst ranks as to their opinions on a company and their projected future stock price target.
You decide the time , desired outcome and perspective you apply to the world of investing .
Professional money management firms set an investment objective of achieving 3 to 5% above an inflation rate over a 3 to 5 year period .
Consider riding shotgun with a pro until you decide your own commitment and role in the process.
Take the opportunity to put some money aside , budget your income and expenses, test drive your goals and plans for your resources i.e. time off , sabbatical , vacations and give yourself the stomach acid test ( the worry and risk factor) and enjoy the journey.
This has never been more the case in terms of feeling like a foil in the market with the latest publicity given to short squeezes and the GameStop play where a community of people on an Internet website communicate about a fundamental desire to keep a company afloat , fight upstream against the large institutional investors who were betting that the company goes down , and make a significant number of purchases with unprecedented increases in the volume of trade numbers, for the stock to rocket higher only to plummet back to earth days later.
The power of the individual investor when communicating and coordinated versus the institutional investor may be coming to a little bit more of a level playing field , for some , on behalf of the small investor seeking transparency and equality when it comes to investing money.
Those lessons and perhaps a couple of points you’ve read here today complement the education and insight you have , or seek to have, in the world of creating wealth.
The tools are there ; make a conscious , eyes wide open decision and keep living the dream . Your money or your life ( a good book by Vicki Robin ) .....
You can have both ; Your money and your life !