Perry Glasser

FINANCE FOR THE CLUELESS: INVESTING – BASICS 1

In Economy, EDUCATION, Finance, FINANCE FOR THE CLUELESS, Personal Finance, Political Economy on March 15, 2014 at 12:45 pm
Get Rich Quick Wealth Generators

Get Rich Quick Wealth Generators

Dollar$ Disclaimer

Wall Street Wizards are touts. Touts are eager to sell you the names of winners. On Wall Street, thy will sell you the names of companies that will be fracking the shale deposits deep beneath Central Park once they obtain regulatory permission. They can supply you with the names of organizations accepting reservations for tourism to Mars; they have a list of companies exploring time travel. As wizards, they often use rhetoric that is in the subjunctive mood. They employ a lot of if, maybe, and might.Dollar$ will name no companies. If you want a tout, there are plenty online.Dollar$ Readers seeking to own a Caribbean Island before their 30th birthday are advised to select very wealthy parents or to take all their hard-earned cash and place it on a three race parlay of horses at odds of greater than 10:1, a payoff of a cool million with an initial wager of $1,000.  Bookies will welcome you! The Wolf of Wall Street, a film based on fact, details the life of a Wizard who preyed on investors seeking quick and extraordinary profits.Such investors in the trade are known as “Suckers”; such investment counselors are known as “Millionaires.”

Wall Steet Tout

Wall Steet Tout

Dollar$, therefore, suggests that the Clueless embrace two principles of investing:

Get Rich Slowly

Know It Ain’t Complicated

Indeed, Wizards’ claim to wizardry and Buccaneers guard their freedom to pillage the economically ignorant precisely because they seek to keep Citizens befuddled.

  • “Give us your money so we may guide you!”
  • “Buy shares in International Widget so we may be richer than gods while you struggle to make ends meet!”
  • “Pay us for financial education!”
  • “Do not ask for explanations: It requires higher math!”

Sounds familiar?

Dollar$ writes to  frustrate the bastards.

Should You Have Skin in the Game?

Money in a pillowcase is not secure. Never mind the risk of theft, that money draws no interest, and as such it decreases in purchasing value over time because of inflation.

Dollar$ notes that inflation is not, like Gravity, a Law of Nature. Japan for much of the past 20 years has experienced the opposite, deflation, a fearsome economic consequence of the untrammeled boom Japan enjoyed in the 1980s. Yen in a 20-year pillowcase can no buy more Tokyo real estate than it did two decades ago, which may seem like a great thing unless you bought your Tokyo condo 20 years ago, in which case it is now worth less than cheap sushi. In 2009 the US experienced a year of deflation—which (rightly) scared the piss out of people.

The Fed in the US has lately employed several strategies to avoid deflation tand maintain a comfortable inflation rate of around 3 percent. One strategy is to keep interest rates so low that businesses and consumers perceive Savings as having all the economic advantages of a pillowcase.

If you want more, perhaps it is time for you to consider Investing.

Drop that phone!

Investment Readiness

Not so fast, Bunky.

Investing means placing money at risk.

Never forget that risk-reward correlated. Your insured accounts have almost zero risk, and therefore pay near zero. Up to $250,000 in a US bank covered by FDIC cannot be lost. However, that 3-horse parlay of nags at 10:1 or more pays at so high a rate because it never happens. The true odds are 1,000:1. Someone may win the gazillion dollar lottery, but that’s called gambling, not investing.

You have no right putting your money at risk until.

  • You have a secure job that supplies enough cash flow to meet your expenses.
  • You have NO consumer debt.  If you remain ignorant of the difference between consumer debt and leverage, Dollar$ forgives you, but insists that you reread Dollar$ on How to Spend. The math is simple: should you invest in pursuit of earning 7 percent, or pay off debt where you are forking over 20 percent?
    • For the record, student debt is leverage.
  • You have at least 3 months of expenses in liquid accounts. Liquid means you can get your hands on it quickly.
    • Everyone thinks their job is secure until they show up at the office and find the doors padlocked.
  • You have assessed your risk tolerance.

Risk Tolerance

Glad you asked. Your tolerance for risk consists of two factors that measure your willingness to experience catastrophic losses.

Age. The younger you are, the more willing you should be to undertake risk. If you are in your 20s, if the US goes through 20 years of hard times, such as the Great Depression or Japan’s Deflation Agony, you will be in your 40s when the sun breaks through the clouds, still two decades from anything like retirement, and if you have maintained the Dollar$ steady get-rich-slowly program, you will have amassed assets at bargain basement rates.

Psychology. Never invest in any financial vehicle that will force you to lose sleep. Let someone else make that fortune: you have a life to lead, and your lover, children, and co-workers do not want you to be some sleep-deprived zombie lashing out at them because the $1,000 you put into International Widget has fallen to $800.

Are you ready to go forward?

What to do and when is coming soon!

FINANCE FOR THE CLUELESS:  INVESTING – BASICS 2

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