When I started investing there were a few simple rules that were told to me, and they still ring true to me. These three investment credo used to be the de facto standard, that seem to have been forgotten. I enjoy being contrary, and these ideas seem quite contrary to todays thinking.
Don’t Invest It, If You Can’t Lose it
A little strong-worded, but the sentiment rings loud and true to me as an old-time investment credo. You should not be investing any money that you must have to live (just as you should never gamble that kind of money either). It doesn’t matter what kind of sure-thing (to borrow from gambling again) that you think you might have, if you can’t lose it, don’t invest it!
This isn’t wrong, just ask anyone who invested in Nortel, Bre-X, Enron or other great industrial failures. The likelihood of losing all your money may not be likely, but it is still quite possible. Risk and how to deal with that Risk is the most important part of your investing plan.
Invest for the Long Term
That one is more of a platitude than actual advice, but getting across the point that whatever investment plan you choose, it should be for long-term growth, not short-term pop. If your investments stumble early on, do not simply bail on them (unless you knew it was Nortel, then bail) because they have gone down a little. If you did the research and are confident that you made the right choice, stick with it (but don’t ride the bomb into the ground either).
Index investing seems to fit this model well. You are investing at a macro level (i.e. buying a whole index), which suggests you are in for a long period. I don’t think long-term investing is such an antiquated concept.
You Want Safety, buy GICs
I am sure some of my readers might ask, What is a GIC? Guaranteed Investment Certificates are the only thing you can buy on the market that will go up in value, (unless there is a catastrophic economic failure). This growth is low now, 1.4% for 18 months, higher as interest rates go up (back in my day GICs could be bought at 15%). This (and no not bonds) is the only way to get guaranteed growth. If you must have the principal at the end of your investing period, this is the only thing you can buy.
As interest rates climb back to a less stimulated level, GICs may make a comeback with investors, but where is the profit for the Banks for these investments? We shall see if investment “experts” engage this concept again.
Ask your investment expert about these concepts, see if they poo-poo them. These ideas aren’t sexy or exciting, but they do still make sense.
When, not too long ago, GIC’s were paying around 4% I had around $50K laddered for every two weeks to come due. As interest rates went progressively lower I finally dumped them and went in to stocks.
For the time it lasted it was nice to have $2K coming due every two weeks. Nice “cash” cow
RICARDO
My guess is we are heading back to those rates in the next year or two (maybe sooner).