Guidelines and Perspectives

I would like to share with you an excerpt from Eric Tyson's 7th Edition of Investing for Dummies book:

20 Rules for Successful Investing

1. Saving is a prerequisite to investing. Unless you have wealthy, benevolent relatives, living within your means and saving money are prerequisites to investing and building wealth.
2. Know the three best wealth-building investments. People of all economic means make their money grow in ownership assets — stocks, real estate, and small business — where you share in the success and profitability of the asset.
3. Be realistic about expected returns. Over the long term, 9 to 10 percent per year is about right for ownership investments (such as stocks and real estate). If you run a small business, you can earn higher returns and even become a multimillionaire, but years of hard work and insight are required.
4. Think long term. Because ownership investments are riskier (more volatile), you must keep a long-term perspective when investing in them. Don’t invest money in such investments unless you plan to hold them for a minimum of five years, and preferably a decade or longer.
5. Match the time frame to the investment. Selecting good investments for yourself involves matching the time frame you have to the riskiness of the investment. For example, for money that you expect to use within the next year, focus on safe investments, such as money market funds. Invest your longer-term money mostly in wealth-building investments.
6. Diversify. Diversification is a powerful investment concept that helps you to reduce the risk of holding more aggressive investments. Diversifying simply means that you should hold a variety of investments that don’t move in tandem in different market environments. For example, if you invest in stocks, invest worldwide, not just in the U.S. market. You can further diversify by investing in real estate.
7. Look at the big picture first. Understand your overall financial situation and how wise investments fit within it. Before you invest, examine your debt obligations, tax situation, ability to fund retirement accounts, and insurance coverage.
8. Ignore the minutiae. Don’t feel mystified by or feel the need to follow the short-term gyrations of the financial markets. Ultimately, the prices of stocks, bonds, and other financial instruments are determined by supply and demand, which are influenced by thousands of external issues and millions of investors’ expectations and fears.
9. Allocate your assets. How you divvy up or allocate your money among major investments greatly determines your returns. The younger you are and the more money you earmark for the long term, the greater the percentage you should devote to ownership investments.
10. Do your homework before you invest. You work hard for your money, and buying and selling investments costs you money. Investing isn’t a field where acting first and asking questions later works well. Never buy an investment based on an advertisement or a salesperson’s solicitation of you.
11. Keep an eye on taxes. Take advantage of tax-deductible retirement accounts and understand the impact of your tax bracket when investing outside tax-sheltered retirement accounts.
12. Consider the value of your time and your investing skills and desires. Investing in stocks and other securities via the best mutual funds and exchange-traded funds is both time-efficient and profitable. Real estate investing and running a small business are the most time-intensive investments.
13. Where possible, minimize fees. The more you pay in commissions and management fees on your investments, the greater the drag on your returns. And don’t fall prey to the thinking that “you get what you pay for.”
14. Don’t expect to beat the market. If you have the right skills and interest, your ability to do better than the investing averages is greater with real estate and small business than with stock market investing. The large number of full-time, experienced stock market professionals makes it next to impossible for you to choose individual stocks that will consistently beat a relevant market average over an extended time period.
15. Don’t bail when things look bleak. The hardest time, psychologically, to hold on to your investments is when they’re down. Even the best investments go through depressed periods, which is the worst possible time to sell. Don’t sell when there’s a sale going on; if anything, consider buying more.
16. Ignore soothsayers and prognosticators. Predicting the future is nearly impossible. Select and hold good investments for the long term. Don’t try to time when to be in or out of a particular investment.
17. Minimize your trading. The more you trade, the more likely you are to make mistakes. You also get hit with increased transaction costs and higher taxes (for non-retirement account investments).
18. Hire advisors carefully. Before you hire investing help, first educate yourself so you can better evaluate the competence of those you may hire. Beware of conflicts of interest when you consider advisors to hire.
19. You are what you read and listen to. Don’t pollute your mind with bad investing strategies and philosophies. The quality of what you read and listen to is far more important than the quantity. Find out how to evaluate the quality of what you read and hear.
20. Your personal life and health are the highest-return, lowest-risk investments. They’re far more important than the size of your financial portfolio.

(Source: http://www.dummies.com/how-to/content/investing-for-dummies-cheat-sheet.html)

Notice the bookends of this list - they are the two most important ones. Number one is that saving money is itself a sort of investment. Think about: Making tons of  money but throwing it around and wasting it just means that you are your own worst enemy. If with your added wealth you begin to just view more things as "affordable" and "disposable", then that extra money may make you FEEL richer, but you will not be any richer. You will just be playing "catch up" with your new stupidities. Holding yourself back from say a $100 unnecessary thing is equivalent to being paid $100 not to buy it.  Saving is a must. Not only with saving will you not be losing, but you will also be gaining because you will have more funds available for investing. 

However perhaps even more important than saving money is to remember the last of the listed points which is that Money is not an end, it is a means. When you die, you will not take it with you! (Don't believe me? Ask the mummies). Our task as people is to utilize our money as a means for a productive end. Whether it be persoanl health, safety and security, education, family, or charity, we must keep those in mind not only as motivators but as guidelines as to when we are going too far with the means and giving up on the end. Sacrificing family for money when the reason you are amassing money is for family, just does not make sense. Destroying your health to work harder just to pay for extra therapists and doctors later, is just not logical. 

Have other points to add? Agree / Disagree? Leave a comment on the blog or G+ page or email: glocalinvestingation@gmail.com