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8
Rules of Building Wealth |
1. Forget Performance; look at fees
Remember that it?s not what you make, it?s what you keep. When
evaluating an investment evaluate the cost to generate an investment
return. If you are using an investment manager compare the
performance of the investment net of fees. Be careful when entering
into non-tradition investment vehicles life limited partnership
interest. These type of investments tend to have higher management
fees and are often illiquid.
2. Invest when a stock's
earnings estimate are being revised upward.
Investing
when a stock is strong is often a sign of good management and strong
underlying value. Be focused on stocks that are reaching new highs
because the management is committed to increasing the stock value.
Look for stocks that announce buyback programs. This is often a sign
that management feels the stock is undervalued. If the insiders feel
that way, its often a great sign that you should be buying the stock
too.
3. Monitor cash flow to find the winners
Increased cash flow into a company is a great sign that the company
is fundamentally strong. With increased cash flow that company has
the ability to pay increased dividends and expand without taking on
a lot of debt.
4. Put the right investments in the
right places
Don't just buy an investment because
everyone else is. The best investment policy is found in a balanced
portfolio and outlines investment objectives. For example, if you
are young and starting out your career, you should be heavily
weighted into stocks and making investments with greater potential
returns. A person in the retirement, should adopt an investment
policy that focuses on predictable cash flow and protection of
principal.
5. Forget 1 year outlooks; plan at least 5
or 10 years ahead
Even the best professional investment
advisors cannot predict what is going to be the best performer for
the next year. The best investment policy is reached by taking a
long term perspective in mind. When you invest, invest for the long
term. Be patience and allow your portfolio to experience volatility.
If you are worrying about your investments, then you have too much
invested. Only invest what you are afford to lose.
6.
Don't be afraid to hold cash
You should set aside some
cash outside of the electronic banking system. If you were to
experience a disaster your credit cards may no longer work, but your
cash will. Hold enough cash to manage your affairs for at least 4
days (or 72 hours).
7. Follow the outstanding shares
When evaluating a company be sure to check who is currently holding
the stock. How much institutional shares are invested. Institutional
share give more stability to the stock unless bad news is announced.
If the stock is quickly dumped by the institution, this will
probably result in a large drop on the market. Look for companies
that have less than 50% of the outstanding stock in institutions.
This may bring a greater up side if you are holding stock and the
institutions are looking to acquire large blocks. Also, companies
with stock buyback programs are a good sign the companies stock is
undervalued.
8. Don't rely on your instincts; they're
probably wrong
Most people learn this lesson the hard
way. If everyone is dumping a stock, that doesn?t mean that you
should also be buying. Do no try to time the market in a stock.
Remember the saying: ?Lows hit new lows and highs hit new highs? The
best investment policy is one that adopts a slow steady pace.
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