All Terrain Thinking

A Compendium of things I think are Important

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Twenty Tips for no Nonsense Investing

Jonathan Clements is one of my favorite investing reads. Here's his 20 tips for no-nonsense investing. Most of then should sound very familiar to you.

Get an attitude.

Market strategists, your brother-in-law Bob, the television talking heads and the local brokerage firm's slick salesmen all spew an endless stream of utter nonsense. Such garbage would be hysterically funny, if it wasn't so damaging to investors' financial health.

Want to avoid getting taken? You need to summon the skepticism of the unflappable, world-weary, Street-savvy veteran investor.

To that end, when you're next getting an earful, keep these 20 thoughts in mind.

• 1) You don't have any friends on Wall Street. You may want to make money. But so does the Street. And the more the Street makes, the less investors pocket.
  
  
• 2) Your neighbors are delusional. They spend too much, they own investments they don't understand and their overall portfolio isn't faring nearly as well as the one or two stocks they boast about.
  
  
• 3) Most stock mutual funds are laggards and it's hard to find the winners. Sure, there are funds with great 10-year records. But you can't buy their past performance. Instead, what you get is the future -- and often that isn't nearly so dazzling.
  
  
• 4) There are no "magic" investments. Yes, investments enjoy brief surges of popularity and, for a few months or even years, they can seem like a sure thing. Think technology stocks in early 2000, hedge funds in 2003 and real-estate and energy stocks in 2005. But the magic never lasts. See a crowd gathering? Grab your cash and start running in the opposite direction.
  
  
• 5) You can control risk and investment costs, but you can't control returns. So why do investors spend so little time on risk and costs and so much time on returns? Beats me.
  
  
• 6) There's no substitute for saving money. Next time you crack open your wallet, think on this: The dollars you spend today are delaying your retirement.
  
  
• 7) Sophistication is usually an excuse for Wall Street to charge fat fees. If you don't understand an investment, don't buy it. Most folks can do just fine with a handful of plain-vanilla mutual funds, preferably market-tracking index funds.
  
  
• 8) Rich people often have more dollars than sense. Hedge funds? Venture-capital investments? Make no mistake: You have to be truly wealthy to afford the potential losses involved.
  
  
• 9) Your portfolio's growth is driven, more than anything, by how much you save and by how you divide your money between stocks and conservative investments. Your savings rate depends on your ability to delay gratification, while your stock allocation depends on your risk tolerance. So what exactly is your investment adviser doing for your portfolio? Good question.
  
  
• 10) If an investment is exciting, it probably won't be especially profitable. Investors love to buy hot growth companies, trade mutual funds and take a flier on initial public stock offerings. Before you join the fun, however, consider how much you might lose -- and how many paychecks it will take to recoup the money lost.
  
  
• 11) There is nothing like the prospect of a fat payday to skew advice, so be leery of all investment recommendations from commission salesmen. That brings me to a pet peeve. Investment advisers will often claim that most folks aren't smart enough to invest on their own, so they need an adviser's help. And yet, in the next breath, they will defend high-commission products like variable annuities, mutual-fund B shares and equity-indexed annuities, saying they only sell this stuff because that's what customers want.
  
  
• 12) Land appreciates, houses deteriorate. Like your car, your home sits out in the rain. You know your car is depreciating. Why should your home be any different? Keep that in mind next time your neighbors tout the investment value of their new kitchen.
  
  
• 13) Sound investment strategies don't change with the news. By all means, read the personal-finance magazine's 2006 market prediction and listen to the television reporter's breathless dispatch from the floor of the New York Stock Exchange. But for goodness sake, don't act on this nonsense.
  
  
• 14) Your worst investment enemy is often found in the mirror. Even if you don't get tripped up by Wall Street shenanigans or your brother-in-law's foolish advice, you could still end up with wretched returns if you chase hot investments or panic when the market declines.
  
  
• 15) Tax deductions are money losers. True, if you are in the 25% federal income-tax bracket and you incur $1,000 of mortgage interest, you will save $250 in taxes. But the other $750 is coming out of your pocket.
  
  
• 16) Leverage bites when you get it wrong. Most people wouldn't dream of borrowing money to buy stocks. Yet, it's considered prudent to borrow 90% of a home's purchase price. Most of the time, your leveraged real-estate bet will work out just fine. But cross your fingers, and hope you don't suddenly have to sell just as real-estate prices are sinking.
  
  
• 17) If financial forecasters are unanimous that stocks, or bonds, or the dollar are about to plummet, they almost certainly won't. The reason: Presumably, these soothsayers and their clients have already acted on their prediction -- and thus it's already reflected in current market prices.
  
  
• 18) Insurance is a necessary evil. When you buy insurance, you are paying somebody else to take on risk that you can't afford to bear. That can be a smart move. It will also cost you, however, so you shouldn't buy more insurance than you really need.
  
  
• 19) You can't get rich by spending money. The folks with the big house, fancy cars and designer clothes are, no doubt, loaded. But they may be loaded with debt.
  
  
• 20) Investment experts who promise market-beating returns deserve our profound skepticism. After all, if they are so wise, why are they still working for a living? And if their investment ideas are likely to be so profitable, why are they sharing them with us?

Salesmen say:"millions and millions and millions could mean 3 million" - SanDiego
"I enjoy just waging my *o*k in your face"

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