What do you get when you order “some assembly required” furniture on a site such as amazon? In my case, I recently had a superior experience with a glass-door bookcase from Simpli Home. The product is shipped knocked down to fit the cartons, but has a neat cam system that holds everything together well when it’s assembled. I also had a great customer service experience when I ran into a snag with assembly. Recommended!
If you don’t believe me about investing, then how about Warren Buffett? Here’s advice from the Sage of Omaha, the world’s best-known investor, in USA Today:
“Doing reasonably well investing in stocks,” Buffett says, “is very, very easy.”
Here’s how he says investors should play the investing game:
“Buy an index fund, preferably over time, so you end up owing good businesses at a reasonable average price,” says Buffett. “And that is all you have to do.”
I recently saw a questionnaire from a major financial firm. The idea was good — get the client to fill out this form and then the adviser can make suitable recommendations. But I saw one multiple-choice question that was sadly lacking one answer. Paraphrasing (to avoid copyright concerns), it asked whether I was:
- a beginning investor
- moderately experienced and therefore comfortable with mutual funds, etc.
- knowledgeable, someone who has traded individual stocks or bonds
- someone sophisticated, who has “traded stock options, exercised stock rights and warrants”
Do you see what’s missing? It’s an answer (5), “someone so sophisticated that I know how stupid it is to engage in answers (3) and (4).” The more you know about investments, the more your understand the power of buying and holding index funds.
It’s possible to lose a lot of money on Initial Public Offerings of stock, or IPOs. (Companies that want to begin having their shares openly traded “go public” with an IPO arranged by an investment bank. The investment bank buys the new shares, pays the company, and then releases the shares to the open market. Sometimes a stock recently available through an IPO will skyrocket, making lots of money for those lucky enough to get in early. But it’s a risky bet for the individual investor.)
The Atlantic reports on the story of a retired schoolteacher who placed a big bet on Facebook the day of its IPO. She risked over $200,000 on the stock of the social networking site, only to find thousands of dollars of wealth evaporate when the IPO flopped. In fact, Facebook is famous now for its big flop. There’s a lot more detail to the story, but the fundamental mistake she made was playing against the big boys in their game.
IPO’s are inherently a bad place for individual investors to be gambling. So to avoid IPO victimization, avoid IPO’s.
If you want to gamble, buy a lottery ticket or go to Vegas. If you want to invest, then buy and hold index funds.
Yogi Berra was once asked why his team lost, and he responded: “We made too many wrong mistakes.” Over at “Ask Matt,” a personal finance columnist is essentially warning against the wrong mistake.
Here’s what I mean. Matt says, “Investors must bail out when shares decline 10% or more to avoid such a catastrophic loss.” Using such a rule, you would buy individual stocks and track them carefully, selling with any 10 percent loss. But wait . . . lots of stocks declined 10 percent or more back in 2008-09. If you sold then, you took a beating. If you instead held on, you realized a spectacular gain.
Forget about strategies for individual stocks. If you’re in individual stocks at all, you’re probably making the wrong mistakes. Any simple buying and selling rules are such mistakes. A better strategy? Buy and hold index funds.
A joke among financial planners says that the baby boomer retirement plan is “learn to enjoy walking and reading.” It’s a joke that plays on the common finding that boomers, those born between 1946 and 1964, haven’t saved enough to afford a comfortable lifestyle in retirement.
That joke has a couple of elements of hidden wisdom, however:
- “Learn to enjoy walking and reading” reminds us that we do have some control over our own preferences. Walking is inexpensive and good for our health, and — thanks to libraries and Project Gutenberg* — reading is inexpensive.
- Thinking about walking and reading can help us focus on this: It’s not the money we spend that makes us happy.
As I write this, there’s a lot of excitement about the stock markets breaking previous highs, possibly headed toward a new all-time high. What’s a stock investor to do? Since stocks inevitably go down from all-time highs, shouldn’t you try to sell out at the top and pocket your gains?
The answer is simple: no. Selling out at the top is easier than it sounds — you never know when a top occurs until it’s gone. Selling out may leave you wishing you had left your money in, as new and higher peaks are achieved.
So what should you do as the market flirts with new highs? That’s easy: Buy and hold index funds, regularly, in small amounts. A regular investment from each paycheck is a great way to go. You’ll buy some expensive stock, to be sure, and you’ll make less money than someone who “times the market” perfectly. Such people are both rare and lucky.
There’s a new payment card available — and while it’s not for everybody, it might be for you. Called the “Bluebird” card, it’s a joint venture of American Express and Walmart. You load it with money and then it’s good anywhere that American Express cards are accepted. Here are some of the people who can benefit most from the Bluebird card:
OK, you know you should review your entire budget to bring your spending in control, but you don’t have time? Here are two quick things to do:
- Go change your conventional cellphone service to prepaid. Even if you don’t switch carriers, you’ll probably save money. Here’s more on that.
- Check on spending less on cable. There’s so much available now online and even over-the-air. Even if you don’t change your plan, there’s every possibility that if you call your cable provider and explain that you need to spend less, they’ll suggest some ways of doing that, possibly even through a discount unavailable unless you call.