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The financial world is ever changing: numbers and dates just keep on pumping out new numbers and dates. At he same time, the financial world does not change much.
Not Changing?
What could possibly be meant with saying “the financial world does not change much”? This points to the fact that the idea that the more things change, the more they stay the same, as follows:
– Investing requires taking risk.
– Investing means less today in the hope/expectation of more tomorrow.
– Investing requires vigilance as it attracts scams and fraud.
– Living beneath one’s means is a sure-fire way to not go overboard.
– Slow and steady is a calmness that cannot be surpassed.
A Story
A few years ago I was told the following story. By dint of being in the right place at the right time (a large company acquired a smaller company), someone gained four million dollars. This person then went out and purchased a four million dollar house. (I think you can guess where this is going.)
What happened next seems inevitable. Within a year, the purchaser lost the house… was forced to sell. The purchaser seemingly did not account for all the expenses that come along with a home. Taxes, new appliances, renovation, repairs, maintenance, utilities, and so on, all take their toll. (I would guess that this purchaser probably did not even account for the tax burden on the original four million dollar stock sale.)
The purpose of this story is to illustrate the “live below your means” adage. Not only in one’s regular wages, but also in windfalls. In my view, should this windfall have occurred to a more prudent person (say, you or I), the first thing to do is take an extra large reserve for taxes and other expenses. Then and only then would we consider a large purchase. Perhaps even waiting a year would be appropriate, as unforeseen items happen all the time.
Dividends
Investing in dividend paying stocks has proved to be successful for me. It is true that current bond interest rates and money market savings account rates are now higher than average dividends, I primarily maintain my dividend approach. Aside from the dividends received, stocks represent equity ownership in the those companies. This something that neither bonds nor money market accounts can offer. In addition, as rates climb, bond prices decline, so there is that added risk of capital loss. In a rising interest rate environment, if bonds are sold before maturity, losses are quite likely.
With interest rates high, I have periodically purchased very short maturity (6 month) FDIC-insured bank CDs. I hold each one to maturity. After the bond matures, if rates continue to be high at that time, I may purchase another similar bond. I am thus protected: since maturity is so short, I am in no danger of needing to sell early. These bonds are FDIC insured, so I am protected.
How are you handling current economic conditions? Let me know here.
The proposed map of Erope is from “Das Neue Europa Mit Dem Dauernden Frieden. Die Unionisierung Mitteleuropas.” (The New Europe With Lasting Peace. The Central European Union.) published in 1920, as an effort to prevent another European war. Courtesy Cornell University Library.
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