Ideas on how to become rich: Financial Management - what the rich do in a down market, part 2

Ideas on how to become rich: Financial Management - what the rich do in a down market, part 2

SALLY KLAUS AND HER FINANCE IDEAS:

FINANCIAL MANAGEMENT: WHAT THE RICH DO IN A DOWN MARKET

Part two

Building your house

Your investment portfolio needs to reflect your personality. It is like buying a house with different rooms, for different purposes. Make sure your financial assets in your investment portfolio suit your personality, just as furniture suits your individual style and room design.

People have varying motivations and reasons for having investments and financial assets. These investment motivations and emotions could range from greed to fear, from comfort to excitement, the need to make money or the urge to make a quick buck, long term and short term goals …

Asset class ... and
Represents investors’ quest for...

Cash
safety and liquidity

Bonds
Income , reliability, predictability

Stocks
Ownership, value creation profits

Real estate
Tangibility, ownership, income and ego

Commodities
Exposure to price moves and human needs

Precious metals
Purchasing power protection, hedging

Venture capital
Capital growth, control over corporate destiny

Mutual funds
Trend exploitation, protection against market turbulence

Hedge funds
Finding and taking advantage of inefficiencies

Inflation – indexed securities
Inflation hedging and pp protection

Art
Prestige, ego, income and intellectual affirmation

Reminder: match the investment to your financial goals and personality.

Combining dreams into a plan

Your investment plan should be as specific and individual as your dreams. Many of us invest in certain assets because of what they can do for us. Most want their money safe from inflation or turbulence, and also want to fulfil their dreams of a possible future “good life”, which quite often requires a lot of money!

There are many objectives for investors.

The first is protection against the effects of inflation. When inflation rates soar, stocks may tend to get hurt. The rising costs of borrowing and doing business may make it difficult for them to grow faster than the inflation rate. In addition, many of the stocks tend to follow a certain trend.

The second reason for owning stocks is that we want to gain exposure to profitable companies and overall economic growth. In the long run, owning equity assets give us the investment opportunity to profit from economic growth .

Third reason is that we want some sort of investment return – to get paid for the hard work and our money. It is thus best to include dividend paying stocks, preferred stocks and REITs – real estate investment trusts. This is to protect you in the case of turbulence and times of crisis.

Many people own stocks because they want to ensure profitability as well as liquidity. But never use long term assets for short term investment goals and vice versa.

End of second part of this “financial ideas” series


Special thanks to Sally Klaus and her invaluable contributions to Ideas on How To Become Rich! Stay tuned for more financial and investment ideas, thanks and cheers!

Ideas on how to become rich!