The best advice I ever read on investing was from a surprising source: Scott Adams, the creator of the Dilbert cartoons.
The advice was so clear and simple I memorised it. Here it is, paraphrased, and with my own additions:
– Own Your Own Home.
Rents go up, they hardly ever come down. Even social housing is subject to the whims of government.
So try to own a piece of real estate which you have legal title to, which the local government will give you permission to build on, and which you can properly defend.
Even if you only put a second-hand caravan on it, it’s a start. This is the basis of a fortune and the start of peace of mind.
Property has value in itself and can be rented. It increases in value over time, when bought outside a bust period. You need someplace to lay your head.
The above advice is only invalid if you are in the middle of a housing boom. As with any other good, never buy if Joe Q Public and the popular press are saying you should. That’s the time to get out. This happens about every 7 – 12 years.
Boom eventually turns to bust. Go for a walk and have a chat with yourself; is the house you’re buying truly worth £1.2m? Will it retain and increase its value in the next 3 years? If your gut says no, move on.
– Get Health Insurance, For Yourself And Your Family.
This is important in America. It’s less so in countries with socialised medicine. When you are ill you are no use to anybody and can do nothing.
Get into a good scheme that covers you for the most common ailments and which is well reviewed online.
Lower your premiums by cutting out red flags like smoking, and increasing your excess/deductible.
– Save Up Enough Money To Last You A Year And A Day.
… or at least 3 to 6 months, depending on how in-demand you are in your profession.
Many people live hand-to-mouth, ekeing out a living. They have a few indulgences that, coupled with their normal monthly expenses, mean they are broke near month-end. This is a recipe for disaster.
You can skate along for months, even years, but eventually life throws you a curve-ball. You borrow to cover it and you can then spiral into debt, depression and homelessness.
Put some savings between you and life’s hard lessons.
– Pay For Your Kids’ Education.
Again, this depends on whether you live in America or a more socialist country. Even if the latter, the education system may be so politicised as to hamper a child’s chances at succeeding in life. So save up for the kid’s college fund.
Home schooling of some kind is not a bad idea. What children learn at home stays with them. Parents who encourage their children to learn will have successful offspring. They will outperform children from broken homes or ones where the TV is worshipped above the book.
Life is a battle for survival. We in the West just have it a bit cushier. Give your children the best start and they may keep you in your old age.
– THEN You Can Invest In Stocks, Bonds and Precious Metals.
Invest in stocks, bonds and tangible precious metals* with any spare cash you’ve left over.
– Pick industries you understand.
– Pick companies that have been in existence for over 20 years.
– Pick companies which are paying dividends.
– Pick shares in companies which are supplying ‘boring’ essential goods.
– Buy a spread of shares in different sectors.
– Don’t buy when you are elated or depressed.
– Don’t buy when John Q Public and the popular press are touting a particular stock.
Do the above and you will narrow down your options nicely.
– That’s it!
A simple recipe for financial success. Not the easiest and not the riskiest. Any other advice is an addendum.
When an advisor is speaking in a language you don’t understand, and he can’t explain to a cynic what he’s doing, in simple terms, move on.
*e.g. gold coins.