“I Am An Investor”

Well, that’s not exactly what I said, but I found that a piece by Knight Kiplinger, the Editor in Chief of Kiplinger’s Personal Finance, in the June issue of the  magazine says a lot about what an investor should do in this stormy economic environment. Mr. Kiplinger isn’t as well known as legendary investors such as Warren Buffet, but I think his view is closer to those of ordinary *investors* and, thus, his ways of handling investments are more applicable to our own investments.  Let me first share with you Mr. Kiplinger’s manifesto as an investor:

I am an investor. I don’t trade my assets frequently. That’s speculation, not investing.

I am also a saver, fueling my investments with continuous savings from current income.

I know that every kind of asset entails risk – even cash, which can be eroded by inflation.

I know that higher returns entail higher risk, in every kind of asset.

I accept those risks, but I mitigate them by owning a diversity of assets.

I regard my home as a place to live, not as an investment. It is not a substitute for retirement savings.

I have an investment plan and a plan for asset allocation, in consultation with a financial adviser.

I invest regular amounts every month, in both rising and falling markets. I know I cannot gauge market tops and bottoms. If I receive a windfall – a bonus, bequest or gift – gradually feed it into my regular investment mix.

I don’t pour more money into hot markets nor completely cash out of plunging markets.

I spread my investments among several asset classes, in a mix fitting my age and risk tolerance.

My share of bonds roughly equals my age. I will allocate to stocks a declining portion of my financial assets as I get older.

I rebalance my portfolio every quarter. If the stock market plunges, pushing my stock allocation way below its target percentage, I sell bonds and use my cash to buy stocks.

I force myself to sell high and buy low by periodic rebalancing – just what is temperamentally difficult for most investors to do.

I know that stocks are risky in the short run, so I hold in equities no money for which I have a likely need in the next three years.

But stocks are not too risky in the long run. They have outperformed all other commonly traded assets over periods of 15 years and longer.

Foreign stocks account for at least 15% of my stock allocation. I believe that developing economics will enjoy much higher growth than the U.S. in the decades ahead.

I never borrow against my stocks. Margin calls could force me to sell good assets at a bad time.

I stick with my game plan. I do not check the value of my investments every day or even every week.

I try to keep my cool when other folks are losing theirs.

I remind myself often: I am an investor.

Am I an investor?

I claim I am an investor because I do invest (if that’s all it takes), regularly in good time and bad, and I never cashed out even when my 401k became 201k. Instead, I viewed the severe market downturn as an opportunity to increase my holdings. In the long term, I know the stock market is the place where I can get the most from my investments.

I have built a diversified portfolio over the years that contains asset classes such as large-cap, mid/small-cap, foreign stocks, real estate, precious metal, and bonds. The portfolio didn’t return 20% a year, but I never lost any sleep worrying about it either.

While I am investing, I am also speculating, with a lot of my individual stock purchases falling into this category. However, speculation is never the major theme. I do it on the side in order to make a few quick bucks.

I am not afraid of risk because I know in order to get higher returns, I have to take on a greater deal of risk. That’s why I am investing heavily in hot emerging markets such as China. I have some big huge ups and downs by investing in foreign markets recently and it will continus in the future, but I am sticking to my plan.

And of course, I am a saver first. Without puting saving ahead of spending, I probably will never find any spare money to invest.

Are you an investor?

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