FP Article 21

The Power of Conservative Investing

by Rajen Devadason

Philip A. Fisher

In day-to-day living, when we talk about risk, we are usually referring to the possibility of something nasty happening to mess up our existence. For instance, crossing a busy highway or expressway on foot dramatically raises your odds of meeting your Maker sooner than expected! But in the realm of investing, taking on risk simply means purchasing investments that are volatile - meaning they rise and fall in value over time. 
 

If you wish to learn more about investment risk, read this article or take this eCourse. Right here, however, we're going to consider an interesting irony that exists in the economic world:

Those who organise their affairs in a conservative manner often inject sufficient financial strength into their lives to permit them to invest aggressively, load up on investment risk, and eventually reap huge rewards!

But those crucial benefits most often accrue to people who act conservatively out of an intelligent understanding of financial mechanics and not out of wide-eyed terror! It's vital that you understand the difference between the two groups of conservative individuals.

Our world is filled with those who are so frightened of taking on any risk whatsoever that they only keep their excess funds in the bank. On the plus side, they never lose any money... at least on the surface. On the minus side, they lose ground to inflation every year that they act in this predictable, but ultimately economically unwise, manner.

There are also other individuals with heightened gambling tendencies who embrace risk even when they are unprepared to deal with the incredibly steep ups and downs that capital markets tend to throw at all of us - the prepared and unprepared alike.

Only those who possess the best traits of each mutually exclusive group run the highest probability of long-term financial success. Here are 3 such traits:

1. Discipline - to first build up large cash reserves, including a fully funded emergency buffer fund.

2. Intelligence - to commit to learning how the economic world works.

3. Patience - to gradually accumulate funds while watching carefully for prime buying opportunities.

DISCIPLINE

When stock markets surge, it seems as though everyone suddenly metamorphoses into a super-investor. But what goes up, invariably comes down. In truth, it takes gobs of discipline of the right sort to be willing to painstakingly lay the groundwork for a lifetime of beneficial investing.

In the economic world, there is a natural progression from saving to investing to speculating to gambling.

In my opinion, gambling is stupid and speculating is unwise. Saving and investing, on the other hand, are worth learning about and then actively carrying out! However, before you invest, you should save.

And the first goal of saving is to build a sizable emergency buffer fund. Read this to learn how to save, and this to learn how to establish an emergency buffer.

INTELLIGENCE

Often the people with the highest IQs have the smallest bank balances. I'm not sure why that is, but this widely observed phenomenon doesn't negate the absolute truth that investing is most successful when it is most business-like, and it is most business-like when it is carried out in a manner that is both intelligent and wise!

How do we grow intelligent and eventually wise? We begin by reading!

I'm a huge, unapologetic believer in the uplifting power of reading. So, if you'd like to read your way to greater investing intelligence, help yourself to this free resource.

PATIENCE

Most of us are impatient. We're impatient with ourselves, our spouse, our children and our friends.

Working on developing patience is a lifetime task. But if you hope to blossom into a supremely successful investor, then you must nurture patience in that area as quickly as possible. The best way to do so, financially speaking, is to develop a clear strategy that links your saving and your investing goals.

In my day-to-day work as a consultant, probably the greatest value I bring to my clients is the development, implementation and monitoring of such personalised strategies. All this work requires deep rumination. Similarly, I suggest you spend time alone thinking about your financial goals and working out a long-term strategy to reach each precious one.

I wish you well in this noble endeavour!

If you would like to immediately purchase a copy of my financial novel Liberty - From Debt-Slave to Money Master, you should still first read what others have said about it - here. Liberty teaches 2 powerful strategies for getting out of personal debt through the enjoyable (and interestingly linked) fictional stories of 3 young men who have made very different types of serious financial mistakes.)

Finally, if you're a Malaysian who is between 35 and 50, is very, very, very serious about life planning and financial planning, and if you want to learn more about my consulting services, you may do so here.

© Rajen Devadason