Investing 101

A sister to my Daughter-in-Law asked my wife if there was a secret to investing smart so she could at the end of her working years be well off.  Here are some of the basic facts we have learned over the years.  WARNING the following is worth the cost of the advice.   No Guarantees!

• One time at the beginning of our marriage we had a sit down talk with my Grandfather, Curly Fruits.  Curly had led a frugal life and retired early from Shell Oil and passed on some pretty good advice. He said we needed to save and invest at least 7% of our total income in a personal investment above what the Government was doing in our name with Social Security.  The earlier we got started doing that, the better off we would be in the end.  We did. (Just a note, we had this talk early in the day as Curly was known to sneak out to the shed and have a few drinks and later on in the day was not as reliable --Except in the area of fishing.)
• Any investment without a high front end cost and tax advantages are the best.   There were no Roth IRA's when we started so we just put money into the traditional IRA's.  We invested about $4,000 ($2,000) each for a few years. That money built nicely during the early 70's but is now just holding it's head above water. The sad part is that because it was not a Roth IRA soon we will have to start paying taxes on the net appreciation. 
• One of the career choices for us was into a system that had a retirement plan above and beyond the Social Security system.  Barb was a teacher and paid into the Kansas Public Employee system and I was Civil service.  It might have seemed tough to have an additional 14% of our combined salaries withheld but right now it looks pretty good.  Even if they run out of money we will have both got most of our money back. 
• I talked with Barbara about Real Estate being a good foundation to our overall investment program and she said "You're Welcome."   Barbara has a way of looking for a good buy and at every step of the way she has been the guide for solid investments.  One of the schemes is buying the worst house in the best neighborhood and improving our investment with sweat equity.  I am not sure what the Real Estate market is like where you are, but there are almost always run down houses with good bones.  Get some tools and hire done what you can't do yourself.  Good roofs, good plumbing and keep it painted are essentials.  The first time out, granite counters are not a good investment.  Wood floors are.   We now have two rental houses and a house we are selling on contract plus the one we live in.  I haven't sat down and computed the exact return on those investments but it feels pretty good. Our son is in a house that cost about $40,000 and is now worth $90,000.  Thanks Barb.

Now days, investing is a matter of risk vs. what you are able to stand.  If it sound too good to be true, it probably is.  Read, read and try to understand what is the current rate of return.  From there, you will understand that all investment returns are based on the amount of risk involved.  What ever you do, don't do in the stock market what I did.  I have not made a dime on anything I picked out for myself.  I do have one IRA that is OK and a part of that is stock market based.  Now, the stock market is doing well and so is that investment.  I am in it for the long haul so I don't worry about the exact amount or fluxuation.  I will share with you that at the beginning I was able to accept a larger risk because we were investing way beyond the 7% threshold.  Now the return of my money is a lot more important than the return on my money. 

Another basis for the stability of our investments is a good insurance plan.  We keep all of our property insured and with a tornado ripping our house apart in 1983, we now have replacement value for all of our goods.  Now that we have a good base for our lives, we no longer have large life insurance plans and have increased the size of our deductibles on the house and cars.  When we were young and had a young child, we kept much larger life insurance policies in force.  If the agent starts talking about the rate of return inside the insurance policy, he is making stuff up.  I had one policy I bought in 1965 and it was never worth anything near what the accumulated value was supposed to be.  I converted it to a policy that did not accumulate value and had a lot more insurance than the other policy.  When we got to the point that we no longer had a need for coverage we dropped that. 

I will admit that because I don't have any feeling that I will outlive my wife, I have the insurance within the plans to have a portion of my retirement plans pay Barbara after I pass.  These plans do cost some but I think they will be worth the cost.  My dad didn't have coverage on his retirement and when he died, Mom had only Social Security to live on.   

The most important thing for people to do is to pay themselves first.  Buy used cars and save as much as you can.  Do not wait until later on to start saving.  Once you start spending the higher amounts, saving will be hard.  Start out frugal and later on it will be gravy.   I do recommend the Dave Ramsey method of financial management to start out.  We started doing his plan before his plan was published.  In the long run even a fair plan worked hard is better than the best plan not followed.  Good Luck.

MUD