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Prepare for the road ahead

Fourth Installment: Third Foundation

This Foundation will take a little longer to finish because it is so important to capture the entirety of why, what and how to build your financial house.  These Foundations are the simple cornerstones set on solid rock, not sand, upon which you may erect just about any financial or investment future.

We are blessed with a multitude of financial and investment choices, perhaps too many.  The number makes it almost difficult to discriminate them.  Which choices will work for you takes three attitudes – self-knowledge, discipline and perseverance.  The greatest of these is perseverance.  Its application will win out every time.  In their application, you will first gain self-knowledge and over time, you will act with discipline.  When I hear how hard it is to succeed financially, I wonder what that means.  Often the “faulty” choices we make end up leaving us unsatisfied, and then we turn the finger on the externalities and blame the economy, the high cost of living, gas prices, the president, or some other outside thing.  In fact, by returning to the First or Second Foundation, (remember them – Risk Management and Budgeting), we all can process and create better choices.  Was that size mortgage really needed and right?  Or, those other items?  The ownership decision is at the heart of Foundation Three.

The Third Foundation deals with and regards your money and investment strategies today and tomorrow.  It is all about the normal and the innovative steps you take to attain your financial goals.  Goals are what are just over the horizon for you and yours.  It is assumed to be intentional and future-oriented.  This Foundation is also about turning income into wealth, setting up income streams that are steady, predictable and expected, and defining the rate of return to match your objectives.

I have written and talked so much about risk here and on my radio show that I feel I am going to be redundant now.  The crucial decision is how far away your goal is – this is called Time Horizon.  Any goal less than three years is virtually tomorrow in investing terms. 

At five years, you are talking short term.  10 years is mid and 25 years is long term.  Yes, I know many of you are thinking in terms of green bananas these days and you are wrong;  short of a meteor hitting Earth or terminal illness, look at tomorrow as a “money or investment happening”.   Anything else is a cop-out.  Risk (fluctuation of price relative to an average) is reduced by increasing cash/safety, reducing expenses, increasing the savings or extending the goal, and of course, purposefully diversifying the assets.

However, diversification, in the context of a zero sum game, a winner and loser, implies that all you have is a probability of success, no guarantee.  The purpose of diversification is reduction, not elimination, of risk.  Variability of returns is a given.

A documented Financial and Investment Plan, at best, rolls all the strings of your money and investment life into a ball.  Planning will help you be a big boy or girl in life.

What more can be said about investing in terms of variable asset building?  It seems that over the past years, that is all I have been writing about – planning, building and preserving wealth, or turning income into capital. Of course, tomes have been written about this subject, and a few better than I could ever present in 500 words.  Just go to the local library, bookstore or online retailer, and you are set.  Read, read and read until you are blind.  What do you have to show for the reading except blindness?  Why?

The discussion about how to personally build, conserve wealth and achieve purposeful asset allocation, learning and acting on how markets work and keeping at it over time is a very individual matter.  The books provide good general knowledge and advice.  Even the one I write will be general.  What matters is “you, your money and your investments”.  It all has to be brought down to you, the individual, and your now and future.

So, in closing up this corner, this portion of the Third Foundation, I offer this, here are my wisdoms:

? Buy companies, not stocks.Pretend you are going to buy the company and see if it is going to build your wealth.

? Know your risk and return requirements like the front of your hand.The degrees of risk vary with all investments over time.

? Find investments that match the amount of risk you feel comfortable assuming and that will carry you to your goal.

? No one is always right, Nonetheless, be right more that you are wrong.Don’t stay wrong long.If you are bullish and you are wrong, turn bearish.This is true conversely as well.

? Concentrate when you are speculating and diversify when investing.Know the difference.

? Invest with the gain in the action.

? Think and act with the end in mind.

? Don’t chase returns; past performance is no guarantee of future results.

? Love your spouses until death do you part, but release your non-performing companies or mutual funds as soon as it is right.No investment is forever.

? Find a trusted person, who has a trusted process, who can be trusted finding the right products and who can preserver diligently on your behalf, all for a reasonable price.

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Check the background of this financial professional on FINRA's BrokerCheck