When it comes to investing your money, our Money Coach Bill Stanley said we should have a purpose.
“I once went to an investment club meeting and it seemed to me that club members were investing only for the sake of investing,” he said. “Think of it this way: each investment dollar should have its purpose written on it. The purpose might be a new car, a house, retirement - even saving for the next decade."
Stanley said part of the purpose of investing is determining how long it will be before we need the money.
“This helps you decide which type of investment is appropriate,” he said. “My rule: if you will need the money within three years, don't have the money in the stock market. If you want to buy a house in 10 years, in seven years, sell the investment and buy a CD.”
Liquidity of an investment means how easy is it to turn the investment into cash so you can spend it. A dollar bill is liquid; so is a check, he said.
“Stocks can be sold and you can have the money in a matter of days, but rental property, an antique car, or a Picasso painting will take longer to sell.”
Another big factor of investing is understanding what the investment is and how it makes money.
“This is one of Warren Buffet's principles. If it is a high tech company, does the company design semiconductors or make them or assemble them in a product or what?,” he said.
Stanley pointed to Walmart as an example.
“Walmart buys thousands of things from manufacturers and sells them to you after adding a profit to their costs,” he said. “Not so easy to understand are financial institutions which, as we have learned, buy and sell "derivatives" which are impossible to value.
“I no longer invest in the financial sector. A gold bar can be an investment; a gold bar is worth only what someone is willing to buy it for. It provides no income like a bond would. This is important because dividends and compounded interest make your investment grow faster.”
He reminded us that an "investment" is an exchange of money for property that you hope will go up in value. Stocks (ownership of a company), bonds (money loaned to a company or government) and rental property are all investments.
“I do not consider the home you live in to be an "investment;" it's where you live.” he said. “A life insurance salesman will sell you life insurance as an investment. You can get more life insurance at a lower cost if you buy insurance only. Many people think investing in a retirement account is different than a non-retirement account. With the exception of life insurance and collectibles, the investment options are the same.”
Best advice? Educate yourself on all the various things you can invest your money in and then choose the right investments for you. Read, listen, and learn about investing, he said.
Bill Stanley and Money Matters airs every Tuesday on FOX21 Morning News.
If you have a question for Bill, contact him directly: MoneyCoachBill@aol.com
TV Station Profiles & Public Inspection Files forKXRM