For many years I’ve observed the investment
habits of my fellow Americans. All told,
it has not been a pretty picture. What
some persons resort to in an attempt to put their assets to work profitably often
approaches insanity. This subject deserves
scrutiny; let’s look closely at what should and should not be done.
It’s my belief the basis of all sound
investment is something which generates a clearly predictable cash flow. So, for example, if you decide to acquire
corporate stocks, you’ll choose from among those which regularly pay an
adequate quarterly dividend. There are,
of course, securities which meet this requirement. If, instead, your taste runs to real estate,
you’ll do best with rental property in which the rents collected exceed the
anticipated expenses by enough to constitute a decent return on your
investment. And that’s the key word: Investment.
Which gets us to the topic’s title: How not to invest. What transpires for most Americans is not
investment—it’s something else. If
you’re typical, your assets have been relegated by an “advisor” into one or
more mutual funds. The only predictable
cash flow experienced will be to your advisor and to the fund management, both
of whom regularly skim their percentages off the top of your assets, regardless
of performance. Your profit, as your
advisor will assure you, will be in the distant future, guaranteed by the
inevitable rising economic tide by which all vessels will likewise rise.
As bleak as it may be for the typical mutual
fund holder just described, things can be even more uncertain. If, for some reason, you choose to chase hot
promotions, you’ll find yourself in the world of speculation. Possibly today’s hottest is Tesla Motors, a
firm which has wrapped itself into solar energy and governmental tax
credits. Though the firm has failed to
ever generate an operating profit, its common stock trades in the $200 range,
with many analysts predicting nothing but the best. If you’re the sort of person inclined to draw
one card to fill an inside straight, be my guest.
A final thought: I advise you to be
especially wary of professional financial planners. My underlying
aversion to the omniscient investment advisor is the inherent contradiction of
human nature. I believe that no one who
truly knows what the financial future holds willingly divulges that information
to the general public.
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If you enjoy this weekly Straight Talk by Al Jacobs, you’re invited to check out my monthly Financial Newsletter, as well as my new book, The Road to Prosperity
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