My New Best Friend

I would encourage you to spend more time educating yourself in order to have a better understanding of what your financial needs, goals, and objectives are before making any major financial decisions. In order to become a better investor, you should have a good understanding of how various investments work. For instance, did you know bonds can go down in value when interest rates go up? Did you know dividend paying stocks generally out-perform non-dividend payers? Any idea what the best vehicle for guaranteed income is? Unlike the Lord, the investment world does not forgive those who know not what they do.

Allow me to share a story from my latest book, How to Be a Great Investor, on why it’s important to know what you’re doing:

A gentleman approached me for investment advice in the latter part of 2009. He had a $1.2 million retirement portfolio made up of mostly individual growth stocks and mutual funds, which generally do no pay dividends. Prior to the “Great Recession” stock market meltdown of 2007-2009, his investment account was worth $2 million. Not only had he lost his shirt, he had also lost $800,000. One of the reasons for the 40% decline was that he was forced to sell more shares at a substantial discounted price in order to generate the $60,000 per year he needed to live on. Selling low is not a great investment strategy; it was wreaking havoc on his investments.

To further illustrate, suppose I purchased a large number of shares of a company trading at $100 each. I plan on selling one share per month ($100) to supplement my income. Now, suppose my stock declines by 50% to $50 per share. In order for me to get my $100 per month, I now must sell two shares. I will run out of shares and money a lot sooner if the stock stays depressed for a prolonged period of time. To say the least, this man was in trouble.

Imagine working your entire adult lifetime to accumulate a good-sized nest egg only to lose 30, 40, or even 50% of your life savings in just a couple of years. Fortunately, I was able to help guide him back to solvency. By selling what he had in his portfolio and purchasing an assortment of income producing investments, the bleeding stopped. He was now able to live off the income (still $60,000) and not have to sell any shares while maintaining his standard of living. $1.2 million x 5% (dividend income) equals $60,000 per year.

Here’s the really good news for my new best friend. His portfolio recovered sooner because he was able to stop selling things in his portfolio at a discounted price.

The point? Know what you’re doing, know what you’re getting into, or find someone who knows the investment world well, before making an $800,000 mistake.

The GreatInvestor.org website has a plethora of free educational material. You can listen to one of the many podcasts on various investment vehicles, including stocks, bonds, mutual funds, annuities, and Real Estate Investment Trusts.

Take advantage of free investment advice from a seasoned professional.

An intelligent heart acquires knowledge, and the ear of the wise seeks knowledge. -Proverbs 18:15

Thanks and Blessings!

You can purchase a copy of my latest book, How To Be a Great Investor on Amazon.

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