Successful investing is mainly common sense – so says our Money Coach, Bill Stanley. That's because it's our money we're investing.
Stanley pointed out that the fortune we hope for later in life must grow from the seeds we plant today – and that requires us to watch every penny.
“To begin with modest assets and build a fortune obviously requires thrift,” he said. “Thrift has to become part of your nature, part of every investment decision you make. Be a lender, not a borrower. If you want to become wealthy, adhere to a family expense budget that includes a large amount of savings.”
Keep in mind, however, that money placed in an investment is money that's put at risk, he said. The risk is that we might lose some or all of the money. How much risk should we tolerate? Stanley said it's up to each individual.
“Generally, the more risk, the larger might be the reward,” he said. “Buying a ticket in the lottery is an investment, but the risk of losing all of your investment is so great that you should invest only a small amount.”
The two most important money management risks are inflation and volatility. Stanley said inflation is the erosion of purchasing power over time.
“The $100 your grandmother gave you 25 years ago will not buy as much now as it did then,” he said. “Interest-bearing accounts are more prone to inflation risk.”
Volatility is the rise and fall in value of your investment, he said, pointing to stocks as a good example – with the real risk being that we won't achieve our financial objective.
In his experience, Stanley said he's learned that most people don't fully understand investment risk, so he performs a "risk profile" on each client before suggesting investments to help determine their risk tolerance.
Part of common sense and investing, he said, is knowing how each investment works and understanding its risk:
- Stock represents partial ownership of one company; your investment depends on how the company does.
- A bond means you have loaned money to a company or a government. You get paid interest until the bond matures and then you get your original investment back. Whether you get your interest and your money back depends on the company or the government.- Rental real estate is owning a home that you rent to someone else. There are a lot risk factors. The reward is the rent and the appreciation of the property when you sell.
Stanley said there are many, many other investments we can make. That's why it's important to do your homework and mitigate the risk by spreading your investments around.
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