Investing may seem daunting for a lot of people. Maybe you have tried it once and failed, or maybe you are simply frightened of losing your money.
To avoid losing any capital, you simply need to be aware of the main pitfalls and always avoid them. The simple, reliable rules for investing are:
1. Have a plan. Always ensure that you or your financial advisor draws up an appropriate investment strategy for you that incorporates your risk profile, timeframes and financial goals. As foolish as it seems, many people plunge headfirst into investing without thoroughly working through these fundamental issues.
2. Don’t put all your eggs in one basket. Obvious advice, but many people fail to follow it. Many people think that they are on the right financial track by paying off the mortgage on their family home and then buying another property for investment purposes.
Think about it! You have put all of your financial eggs in one asset basket – property. What happens if the property market collapses? Despite common thinking that this is a safe way to invest, the outcome is very risky. You have invested all of your well-earned money into only one area.
3. Build in appropriate timeframes. There is an old saying, “When the tea lady starts to invest in the stock market, it’s time to get out.” What this means is, when the share market is so high that everyone starts to clamber on board, it has probably reached its peak.
There are two ways of successful investment timing. The first is to always pick the low-end of the market to buy and the high-end of the market to sell. This is extremely hard to do. Even the best-informed experts have trouble. The second way is to choose good investments and stay with them over the long-term (say 10 years or more) and ride the waves of the market.
For safe, easy investing, choose the second method. Do not buy into the top-end of the market and sell once it starts to fall. You will definitely lose money this way.
4. Avoid high-risk investments. These include risky business ventures, highly speculative stock, tax avoidance schemes or too-good-to-be-true propositions that promise unusually high returns.
5. Avoid borrowing for your investments. Although some financial advisors advocate ‘gearing your investments’, this can be fraught with danger. Gearing means to borrow. If borrowing for investments takes you over your 40% fixed costs margin, you will be cutting it too fine, particularly if you lose your current income level.
6. Stay with the traditional and known. The best and surest investments are fixed interest, property and shares. Although all asset classes will fluctuate over time.
Work out the optimum mix for your investment profile, have a safe plan to work with and you can’t go wrong.
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6 Rules for Investing
When it comes to lowering their monthly housing payments in the down economy, renters have homeowners beat.
Refinancing a mortgage requires plenty of paperwork, a stellar credit score and weeks of effort. But property owners faced with profit-sucking vacancies and cash-strapped tenants are increasingly willing to negotiate. According to a recent survey from rental property marketplace Rent.com, 68% of landlords reported lowering rents or giving one or more months free to retain tenants.
Try these five strategies to cut your bill:
Research the market
Learning what other people in your building and neighborhood are paying for comparable properties can help you figure out whether you’re overpaying, and how much room you have to negotiate, says Steven Cohen, the president of consulting firm The Negotiation Skills Company, which helps clients negotiate for better deals. Ask other renters what they pay, check similar property listings on Craigslist, and get a local comparison on RentoMeter.com. Cohen’s daughter Abigail tried that tip and found that others in her neighborhood on New York’s Upper West Side were paying an average 20% less than she was for a studio apartment. She brought those figures to her landlord and ended up with a new lease this summer for $1,550 instead of $1,850 — an 18% discount.
Play up qualifications
“If you aren’t a good tenant, you won’t have a strong case,†says Peggy Abkemeier, the president of Rent.com. “The landlord may not want to make concessions to get you or keep you in the unit.†Point out that you’ve always paid on time, have kept the property in great shape and haven’t had any complaints from neighbors. Renters hunting for a new place have less leverage here, but they can benefit from a reference from a previous landlord.
Take on a roommate
Obviously, the more people sharing your space the less rent you’ll pay. But landlords may also offer a break to fill under-housed units. When Eric Woodbury and two friends were apartment hunting in Medford, Mass., in July, one property manager offered them a three-bedroom unit for $2,000, or roughly $667 apiece. Or they could move into a $2,200 four-bedroom where one tenant was already in place, cutting the per-person rent to $550. “That was a big selling point for us,†he says.
Look beyond rent
If your landlord stands firm on the monthly rent, ask about other possibilities to cut costs. For example, you might negotiate for more utilities to be included or a discount on extras like storage space or parking. Rent.com found 38% of landlords were willing to reduce security deposits, and 8% relaxed pet policies (which typically include an extra security deposit).
Track vacancies
Turning over an apartment can cost a landlord thousands in upgrades, marketing and lost rent, Abkemeier says. If your building or community is looking more and more like a ghost town, you have plenty of leverage to negotiate. “I see and hear people moving out of my building all the time,†says Iris Karasick of New York City. Karasick already negotiated the rent on her one-bedroom on the Upper East Side down $100, to $2,155, earlier this year, and says she hopes the vacancies might help push it below $2,000 this fall. “I’m sure they’d rather have a good tenant in the apartment than have to hunt for someone new,†she says.
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The economic crisis has prompted many people to seek help from personal finance books, with Amazon reporting a significant uplift in sales. Classics of the genre promise a quick route to riches, while recent examples, written since the start of the downturn, tend to be more cautious and realistic in their claims.
Times Money has looked at the five bestselling financial self-help books at Waterstone’s and asked financial planners for their views on the key ideas, rating the books from one to five stars. All have a snappy style and are accessible to the novice, but some are considerably more helpful than others.
Note that the recommended retail prices shown can be beaten easily. All the books are selling at a discount at Amazon, and the fifth, by Richard Templar, is half price at Waterstone’s.
Rich Dad, Poor Dad by Robert T. Kiyosaki
Sphere, £8.99
This 1997 book, the centrepiece of the author’s self-help empire, tells the perhaps allegorical story of two fathers: Kiyosaki’s own and his best friend’s. The former, poor dad believed in working hard for a company and keeping “secure”. He died penniless. Rich dad chose to own businesses and boosted his income “passively” by investment, becoming one of the richest Hawaiians and leaving tens of millions of dollars.
Kiyosaki admires the “positive-thinking” guru Napoleon Hill (see below) and touts mantras such as “I choose to be rich and I make that choice every day”. The focus is on getting rich, rather than being comfortable. He explains that his “personal basis” is property.
Expert’s verdict
Zac Ghadially, of Yellowtail Financial Planning, says: “Building an investment income stream can work, but not for everyone. Also, we are advising people to scale down on property at the moment — to use it to meet their life goals, but not as an investment.”
Times Money rating (out of five): 1 star
How to be Smart With Your Money by Duncan Bannatyne
Orion, £12.99
This new book has the advantage that it was written for a British market with the credit crunch in mind. It offers a comprehensive guide to earning, spending, borrowing, investing, saving and budgeting — with sections on choosing a savings account and buying a car, for example. It also has a list of questions to ask when shopping for a loan. There is no get-rich-quick carrot or big “secret” to success.
Bannatyne takes a more cautious line than Kiyosaki, writing, for example, that “the golden rule of investment is to spread your risk” — a strategy dismissed by the American as for people who “go nowhere”. He emphasises that readers should stop worrying about money and start to think about it and make changes.
Expert’s verdict
Mr Ghadially agrees that thinking about money is the first step to healthier finances, and says that Yellowtail asks its clients to complete a written review — something readers of Bannatyne’s book can do on a shoestring using its budgeting charts.
Times Money rating: 5 stars
Think and Grow Rich Napoleon Hill
Vermilion, £8.99
This was first published in 1937 to spread the author’s “secret” to those who, without it, might “go through life as failures”. The secret is never spelt out but will “jump from the page”, apparently. The book is big on popular psychology, particularly positive thinking and the importance of identifying goals.
Hill’s style is rambling, with lengthy diversions on telepathy and the “transmutation of sex energy” — something apparently achieved by the author’s namesake, the French Emperor. The tone is old-fashioned and some of the specific advice is out of date.
Expert’s verdict
Jason Witcombe, of Evolve Financial Planning, says: “We start with the premise that everything is possible. Clients come to us in a financial mess because they don’t know what they want from life. Any book that makes you think about that is a good thing.”
Times Money rating: 2 stars
The Naked Trader by Robbie Burns
Harriman House, £12.99
The cover of this 2007 edition sets the laddish tone, showing the author naked at his laptop.
Burns says that anyone can make money trading shares. He explains how by outlining the mechanics of trading online and listing “winning strategies” and rules, with the classic caveat: “Only play with money you can afford to lose.”
Much of the other advice is conservative, too. For example: “My research involves finding out everything I can about a company before I consider buying.” He does offer some more original tips, such as to consider shares in companies moving up from an AIM listing to the main stock market.
Expert’s verdict
Mr Ghadially has doubts about “anyone” being able to make significant sums in the markets. He adds: “If he had a ‘system’ to make easy money, he would not be writing books.”
Times Money rating: 3 stars
How to Spend Less Without Being Miserable by Richard Templar
Pearson, £9.99
This is another book that is written with the recession in mind and offers 100 money-saving tips. These range from the very general, such as “get organised” and “remember the glass is half-full”, to specifics such as suggesting that you go out later in the evening to reduce your beer bill. Some suggestions are a little extreme. For example, readers are advised to fill old jars and bottles of premium-brand products with supermarkets’ own-brand alternatives to trick fussy loved ones into eating them.
The theme is lifestyle, rather than broader personal finance, so there is no overlap with Bannatyne’s book. Overall, the advice is uncontroversial, but may irk readers who are already fairly savvy. For example, a reviewer at Amazon.co.uk writes: “There is absolutely nothing in this book to justify its existence. It is full of banality, such as do not shop when you are hungry and use any vouchers you might have. This must be some kind of joke. Avoid at all costs.”
Expert’s verdict
Mr Witcombe says: “Your grandma told you ‘look after the pennies and the pounds will look after themselves’. It’s not true. You have to look after the pounds first — addressing big issues such as debt. It’s good to reduce day-to-day spending by cutting out things such as coffee, but do not put off going for a drink with friends. You won’t be happy and that impacts on everything, including your finances.”
Times Money rating: 2 stars
