October 19, 2010

It’s about more than Money - Saly A. Glassman

Investment Wisdom for building a better-life.

[Generic statements /rules to do better experience with your investments]]

Rules in investment world do not provide guaranteed positive outcome. However they are guidelines that improve the probability and that can make all the differences. From 1989 to early 2009, the S&P 500 stock market index return has been almost 8.4% and the average investor's rate of return is around 2%.

Focus your predictions on what you can control: your priorities.
Money making is not the all purpose in life. How satisfying is your family life, How rewarding is your friendship? How is your health? What is my priorities in life? See few folks priorities.

Person A: Fin. security, Family, Health, Hobbies, Career
Person B: Career, Hobbies, Fin. Security, Family, Health.

In each phase of our life, these priorities change as we move forward with our life.

Focusing on 'what might have been' can be unproductive and painful process. You will do better to forget this as a way of viewing your financial life and practice a more constructive approach. This can be accomplished in three steps.

1. Learn to recognize the 'what might have been' in your language. At the time you made the decision, were they the right decisions based on the information you had then? Give yourself some credit! If you made the best decision with the advice and knowledge you had at that time, there is no point inf flogging yourself because events went differently and you didbn't get teh results you wanted.

2. See it for what is really is. The 'what might have been ' view of investing does not take close to solve the problems; it allows you to escape from them (without even solving it)

3. Eliminate 'What might have been' from you language.

Following are the basic rules that every investor should have

1. As the investor, I must understand what I own
2. I must understand the degree which my investments are truly liquid (e.g. stock vs. real-estate)
3. My investment should be completely transparent.(should know details of inner working of your funds - e.g. mutual fund's individual position within the fund)
4. My investments must be audited by federal regulators and /or independent third party (e.g. Ponzies scheme issue catching)
5. I must understand how I am paying for investment advice services and products
6. I don't delegate my critical responsibilities to third party. I have personally investigated the character of people with whom I associate and do business.

The time to have the fire drill is not in the middle of the fire.

We must do the most difficult task - planning - first, when we can think clearly and have the opportunities to evaluate our strategy. Then the consequences are small. When there is no pressure or need for immediate reaction, we can contemplate various options and discuss them with family members and advisers.

Asset allocation and investment strategy:

This is allocated among generally accepted classes: cash, stock, bonds and hard assets such as real-estate or collectables(these hard assets are called illiquid and the others are called liquid) .

Rule of 72.
If you divide 72 by your interest rate, the answer is how many years it will take your money to double. For example, if the interest rate is 7.2%, then it takes 10 year to double it (72/7,2=10)

When counting your investment, don't involve money.

Young Child: what makes a person really wealthy
Wise elder: You are truly wealthy when you are satisfied with what you have.

few formulas:
1. Adjusting your monthly fin. needs for 3% inflation over 25 years
FV(future value) = PV(present value)(1+ inflation rate) power of number of years
FV= 7500(1+.03) power of 25 = 15,700.

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