A lot of people are running scared right now. They see their savings, regardless of the vehicles they used to invest, diminishing in value.
And that has brought out calls and advice from the very ones who, along with their employers, caused the problem! I got two today; agents with brokerage houses wanting to help me through the bad financial times. It's definitely a sign of arrogance.
So I want to share with you some thoughts my daddy taught me. He was a man who came through the Great Depression, worked his way through college, and worked his way up the totem pole in a major company. Although he always worked for someone else, nevertheless, he ended up a wealthy man.
<<==William W. Cherry
MUTUAL FUNDS: Contrary to the way most investors handle their mutual fund accounts, you cannot get the full benefit from this form of investment without dedication to Dollar Cost Averaging from the day you open your account until the day you close it. When you discontinue regular investing, you should pick a time to redeem your account. I'll remind you what Dollar Cost Averaging is at the bottom of this piece.
REASON FOR INVESTING: The primary reason for investing, i.e., saving, is to provide passive income when you discontinue working, and to provide it for the rest of your life without risk. There is no other reason.
BUY TERM, INVEST THE DIFFERENCE: This is a reasonable theory but one that few have the discipline to follow; consequently when the term insurance policy is no long available or affordable, there is no investment. The insured bought stuff with the money instead.
DOWN MARKETS: Down markets are not the time to sell, they are the time to adjust. Look at each individual investment in your portfolio, and trade those that have been under-performing for the stocks of other companies that your due diligence shows will do better. Remember, done properly, you can book those losses against your income for tax purposes. And you'll ride the better chosen investments up as the market returns.
LIFE INSURANCE ANNUITIES. These financial assurances have had a bad name for years because equity brokers do not sell them, yet they are the competition. The usual charge is that the commissions paid the salesmen for signing up policyholders is excessive. That, quite frankly, depends on the company and the policy.
But annuities provide a secure foundation of passive income -- the stuff you can depend on, along with your social security, to send you a check once every month for the rest of your life. Your principal is safe. Equity investments and savings accounts in banks can't do that.
REAL ESTATE. Real estate ownership, properly made, is also a reasonably secure means of providing passive income and capital gains over time. That, however, does not include "flipping" real estate.
OWN YOUR HOME. It should be your goal to own your home free of debt, and to never borrow against it to pay for other expenses. Your home, in most jurisdictions, is an exempt asset. If you own it, no one other than the IRS and the property taxing entities can take it away from you. So if you go broke...even if you owe a fortune...the creditors cannot take your home away from you. You have a place to live.
In Texas, if you're over 65, you can chose to let your home property taxes accrue year after year until you either sell the home, or you pass away. At that time, the taxes must be paid, but they will have accrued interest at a nominal rate and without any penalty.
REVERSE MORTGAGES. While there are, from time to time, justifications for reverse mortgages, even the FHA advises they be used only as a last resort.
SHOULD I BUY A HOME NOW? If you are financially qualified to purchase a home and you plan to live in that home for, say, five years or more, the answer is a resounding yes. History seems to show that to do otherwise will prove to be in error. Use a Realtor.
*Dollar Cost Averaging: The investor picks a dollar amount and invests that amount every month on the same day of the month for as long as he holds the account. The logic is that by averaging your share purchase price, you dramatically increase the opportunity for overall account gain.
Copyright 2008 - William S. Cherry
BILL CHERRY, REALTORS
DALLAS
Oue 44th Year Selling America!
214 503-8563
800 314-7110
Bill
This is all good sound basic advise! I don't think many younger folks are doing much of what you stated but should listen up.
Thanks for your good comments, Trey. One of the main issues that young people have -- in every generation it seems -- is that they think they will always be employable, regardless of their age; consequently, the income from a job or their profession will continue no matter what.
For most people, there comes a time when the spigot gets turned off, and no amount of wishing and praying changes the circumstances: no one wants to employ them, or if they do, it is at no where near their former income level.
We must be prepared for that. It should be above all else when considering the assurance out financial well-being
Great advice Bill....I wish I had heard it 35 years ago!!
(You have your Father's smile)
Miss Joanie,
It's worse for me! He told me over and over. I didn't listen.
And thanks, he was a wonderful man. Been gone for nearly 30 years, and I miss him and my mom, who died in 2001, as much today as I did when I first lost them.
Bill - These are great points and sound advise. I have met young people following this, though. It's their parents' generation (baby boomers) who seem to be half following, half shopping as fast as they can go until the ATM doesn't work anymore.
Karen, I think you are probably absolutely, positively right about the baby boomers. I hope your observation about their children becomes an epidemic. Thanks for adding your thoughts.
Bill C, As usual there are not nearly as many comments here as you deserve. Your "good works" will surely live for a very long time. I intend to read more of your bon mots later today.
Bill Roberts
Bill,
I think it's kind of funny. People don't read my stuff here apparently because 1) they get it for nothing and 2) they'd rather read about some member's new baby or whatever or take marketing advice from someone whose barely surviving in the real estate business.
Like you, those who in real life need our advice pay very big bucks for it and have for years. I;m a dinosaur and you apparently aren't far behind me.
Bill