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image of stock market graph on a laptop for the blog post titled: the best investment strategy for normal people

The Best Investment Strategy for Normal People

image of stock market graph on a laptop for the blog post titled: the best investment strategy for normal people

The best investment strategy for normal people (i.e. non-financial types) is simple. Yet it tends to yield better risk-adjusted returns than a commonly touted investment strategy.

We discussed whether or not the stock market is haunted on The BIGG Success Show today. Here’s a summary of that discussion.

This show was inspired by recent fluctuations in the stock market. What’s the best investment strategy to deal with these fluctuations, if you’re a normal person (i.e. non-financial types)?
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FInancial freedom and security for BIGG Sucess

Financial Freedom is the New Financial Security

FInancial freedom and security for BIGG Sucess
Listen to this post! Click Play to hear George & Mary-Lynn on The BIGG Success Show Podcast (Duration 6:00)

When it comes to money, people have traditionally fallen into two camps:

Some seek financial freedom.

Others choose financial security.

[Mary-Lynn] We split right down the middle on that one – I’m all about financial security.

[George] And I’m a financial freedom guy.

[Mary-Lynn] Which makes decision-making interesting. Obviously, I’m more risk averse than George.

But here’s something we’ve noticed:

In today’s financial climate, you have to go for
financial freedom if you want financial security.

Here’s what led us to this conclusion:

3 Reasons Why Financial Freedom is the New Financial Security

 

  • “Generational returns” are abysmal for most generations

We ran some calculations. We THOUGHT we’d prove that the people who stayed the course after the stock market crash of 2008 were doing just fine.

But we were wrong!

We assumed people started investing a set amount each year, starting at the age of 25. Then we looked at their returns at the close of last year.

We found that people who stayed the course did better than those who got out. However, the results are different for different generations.

People who are now 60 plus are doing okay on their portfolios. But people between the ages of 31 and 59 are underperforming traditional expectations of stock market returns.

So these people may need to be careful using old models of financial planning.

(This is a good place to interject something you’ll often hear us say – you should talk with your own advisors about your specific situation.)

  • Social security does not equal financial security

We saw an interesting article on the U.S. News and World Report site called 10 Reasons to Worry About Your Retirement.

They list a number of things which are in your control. But what really caught our attention is that…

Only 18% of Americans plan to retire
with over a million dollars in assets.

Which essentially means – most Americans are largely counting on Social Security as their primary source of financial security.

BIGG Success is the place for BIGG goal-getters. We know you’re part of the elite group wanting financial freedom – which we’ll define as a nest-egg greater than a million dollars.

  • Volatility

We caught an interview with Jack Bogle on CNBC. He’s the founder of Vanguard, one of the best mutual fund families. He says to…

“Prepare for at least two declines of 25-30 percent,
maybe even 50 percent, in the coming decade.”

The Dow fell about 54% between October 2007 and March 2009. So we’re talking about history repeating itself here if Bogle turns out to be right.

Invest in assets you can control

 

So the question is: What can you do about it?

How can you put yourself on the path to financial freedom – the new financial security? The answer is…

Invest in assets you can control.

Of course, you can’t control everything that happens. But for example – when you own your own business, you can create a cash flow which far exceeds anything you will get from owning stocks.

But don’t jump in with both feet – if you have a job, try to find a way to start part-time. Or tweak your business model so it requires less capital.

Contrary to what you often hear, you don’t have to take a lot of risk today to make a lot of money.

In fact, that’s one of the secrets of entrepreneurs – they’re not risk lovers. They’re great risk managers.

That’s the key – focus on making your downside acceptable so you can move forward with no fear. It leads to BIGG success.

We talk more about this in our Special Report – DECIDE! 5 Keys to Know What to Do Next. Simply sign up below to get FREE instant access!

Direct link to The Bigg Success Show audio file | podcast:
http://traffic.libsyn.com/biggsuccess/00868-070213.mp3

Image in this post from stock.xchng

Mania in the Market and Rising Above the Crowd

buy_sell If you listen to our leaders, be they in business or government, it seems there’s a competition to frame our financial situation in the direst terms. Our media hypes the times so that we stay tuned in. We hear terms like meltdown, nose-dive, crash, collapse, and Great Depression.

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We found a great white paper by Marvin Bolt of Alpha Plus Advisors [PDF]. It’s well worth your time to read the full paper to understand historical mutual fund flows and market performance.

Specifically, he looks specifically at what individual investors did with their money during four recent periods:

Stock market crash

In the first quarter of 1987, individual investors placed a then-record amount into the market as stock prices rose. Of course, in October of that year, the stock market crashed. Individual investors responded by withdrawing record amounts of money as the market hit a low we haven’t seen since.

Gulf War & recession

In the second quarter of 1990, there was a huge inflow of funds as the market hit its high for the period. By the third quarter, investors were pulling money out just as the market hit another low point.

Dot.com bubble and 9/11

At the height of the dot.com bubble, investors poured a new record amount of money into the market in the first quarter of 2000. The S&P 500 hit a high in that same quarter. Things soon changed as the market began falling, reaching a low in the third quarter of 2002, just when individual investors were withdrawing record amounts of money.

Housing bubble & mortgage crisis
The market hit its high in 2007 as investors poured money in again amidst the euphoria. While all the data is not yet in, it appears that in October of this year, a new record amount of money was pulled out of the stock market.

Rising above the crowd
We want to buy low and sell high. History shows that the crowds tend to do the opposite – they buy high and sell low. They invest heavily during the bubble and get out during what we’ll call the crater.

Think about what’s happening right now. Stock prices have been falling. But for every seller, there has to be a buyer! Who’s buying and who’s selling? Morningstar has a great video that’s well worth your time to gain the proper perspective on this crucial point.

To rise above the crowd, you can’t think like the crowd. You have to do the opposite.

So take a deep breath. If you don’t need the money for five to seven years, the odds are heavily in your favor. If you need the money sooner than that, stocks probably aren’t the best investment for that money. Because we’ve relearned just how risky stocks can be in the short-run.

Educate yourself to maintain the proper perspective.
We can’t count on our media or our leaders to do this for us. Knight Kiplinger wrote a fantastic piece explaining all of the differences between today’s situation and the Great Depression. We highly recommend that you read this article to see why he thinks we’re not ready to jump over the cliff.

Market timing is a risky game. Since the crowd tends to get it wrong, perhaps the best way to get it right is to keep investing through the whole cycle. You’ll buy fewer shares when the market is up. You’ll get some great deals when the market is down like it is now. Over time, you’ll end up with a decent return.

Thanks so much for reading our post today. Join us next time as we discuss overcoming guilt about how you choose to spend your time. Until then, here’s to your bigg success!

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00271-112408.mp3

 

(Image by svilen001)