The traditional advice to save, save, save makes sense. After all, you can’t go wrong setting aside money. But in today’s investing climate, where the global economy, condensed market cycles and other forces are changing the nature of investment activities, merely saving isn’t enough to ensure a secure financial future. What is? Owning assets.What do we mean by that? How does it change the game? And what are the biggest lessons we can take away from financial experts on the best investment moves at this particular point in the market cycle? Let’s explore.Holding, Not Just HoardingAsk the best investment minds about this matter and you’ll discover the clear difference between saving and investing is owning.Warren Buffet’s advice to be greedy when everyone else is afraid is timeless because it is psychologically unattainable when the market is set to decline. But his right hand man, Charlie Munger, frames it in a clear manner that most retail investors should understand: “Our favorite holding period is forever.”When you “buy and hold” a stock in a company whose products you don’t use and name you can barely pronounce, that feels an awful lot like investing – when it’s more like high stakes Las Vegas gambling. When you “buy and hold” big blue chip enterprise that send you dividend checks thicker than your meal ticket, that’s another thing all together. This isn’t thinking that stocks are less volatile. Boeing’s stock is up nearly 600% from the height of the last market and it just got downgraded (NASDAQ:BA). It’s knowing that you’re not looking to beat the next guy today. Or tomorrow. Or for the foreseeable future. The point is that the more you accumulate, the more you should be clear about why you own it. That often means owning sheds of companies you could care less about. Looking for advice? Here’s what you can safely assume are the only ones that the world’s 2nd richest man owns: Coca-Cola, Wells Fargo and Moody’s.Resist the Rally, Redeploy the DividendsIt’s hard to overemphasize how hard it is for retail investors to walk the walk of the greatest compounder of all-time when “growth” strategies have worked so well and seem as, if not more, undervalued. Nike shares are up 83% in the last year and that’s where a crowd near 1% spots themselves. Or take Microsoft. The company couldn’t get its stock to steamroll an ant hill for years and then they lost a court case to Apple and Buffet picks up a tiny position – bigger than Exxon no less.Gone are the days of general investing wisdom being that you should have made modest market returns and with compound interest, more than you’d ever need, by the time you retire your 67th birthday. Then moderate the stock bond allocations and play plenty of golf. The payment is passthrough, not just a cash talking point. Buffet doesn’t invest in businesses, he essentially owns them. For three decades. With some of the people who craft the underneath legal language never to bring that investment income back: “We 100% exclude Berkshire dividend income from FFO. If that surprises anyone, we just want to make Buffett (who serves on The Energy Journal’s Advisory Board) feel loved.” Standard & Poor’s isn’t just re-calculating the Dow. Majoring on a report instead of reading the words for yourself saves weeks of company visits but is historically suspect. Forgetting that Berkshire does that with Cider Brands and Shaw Industries every quarter is inexcusable. Citigroup serves beer to Bulls, biscuit with gravy to Bears and berkshire ham on forgotten holiday week hot takes.
How important is it to own assets in todays economy as opposed to the practice of saving money?
Saving money through methods, such, as depositing funds in a bank account has long been a fundamental aspect of managing personal finances. However this approach is becoming less effective due to the evolving conditions and rising inflation rates. On the other hand, owning assets offers a more dynamic approach to wealth accumulation. Assets like stocks, real estate, or bonds can appreciate over time, keeping pace with inflation and potentially providing higher returns.
Saving and hoarding are correlated – ‘Saving’ is a euphemism for not investing allocated salary capital but holding cash during market uncertainty in order to capture investment opportunities when asset prices are more attractive. That’s capital preservation.
When is the best time and approach to find the balance, between saving money and investing for maximizing your financial growth?
Keeping this balance is vital and largely depends on market conditions, as well as the financial goals of individuals. Therefore, as soon as we see markets getting overvalued, it is suggested to save more and wait for some time until they become undervalued.
Listening to the strategies of top investors can be enlightening. For Mattis Anton, co-managing partner of Concentus Wealth Advisors, high reward comes with a balanced approach that includes high probability.The reason? While the firm says it uses complex and customized financial planning techniques to produce optimal investment results, these tools won’t help without monitoring and rebalancing of positions to leading-sounding optimal returns.What has resulted from that in the real world are substantial gains (the firm’s average investment return over the past three years is 26%) for a strategy that is as flexible as it is informed.
What are some effective ways to make the most of cash reserves in an investment plan?
Cash is often seen as the conservative play. It is, but it can also be a powerful weapon in the arsenal of a smart investor. As financial experts Ronnie Solbakken and Walter Mangandid Sandoval will tell you, holding cash is an active investing tactic with strategic — if limited — utility. It’s there to reduce your downside risk when markets crest and to let you buy in when they plummet.
True, but if you’re holding large amounts of cash for a long time, as Dalio says, it hurts because of inflation. But use cash holdings properly, recognising that it’s a tactic not a strategy and you’ll be fine. That’s Warren Buffett’s new game plan. He’s just rushed out to buy very cheap stuff in response to the recent market tantrums, something that he wouldn’t have been able to do if his cash pile hadn’t been building up.
Why is Diversification Important for Managing Investment Risks?
Diversification is fundamental in investment strategy. Diversifying investments, among types of assets helps lower the overall risk. The concept is that if one type of investment performs poorly the others could make up for it.
An investor seeking to achieve a balance of growth income and stability might construct a portfolio that includes a balanced allocation of stocks, real estate and bonds. For many investors, the goal of asymmetric returns in their investment portfolios – in other words, when financial losses in some assets are offset by gains in others – is the best that can be hoped for.
How much should economic and market trends impact the choices we make when investing?
Trends in the economy at large and in the markets, should shape most investment decisions – such as whether buying assets with a history of strong inflation-beating returns, like stocks or real estate, is a better use of a cash cushion than letting it sit in a chequing account during a high-inflationary era.
Understanding those trends and the opportunities they offer, can aid that process of investment decision. It comes out in the discourse of those forums and websites I mentioned, value-investing blogs such as netnethunter.com or adventuresincapitalism.com, where there can be a lot of chatter about the underlying trends in markets that offer opportunities to the value investor.
What are the differences, between owning assets and saving traditionally when it comes to building wealth?
Investing in assets such as stocks, real estate and bonds presents an approach compared to traditional saving methods as it provides opportunities for value growth and earning potential. When it comes to saving money most people tend to put their funds into bank accounts that offer interest rates. However investing in assets can potentially yield returns especially during periods of inflation. Investments can not keep up with rising prices but also have the potential to grow in worth providing a more active strategy for building wealth.
What strategies should one consider to strike a balance, between saving and investing effectively?
Finding a balance among saving and investing demands a bit of understanding concerning market conditions paired with your financial goals. During overvalued markets, holding off on investing heavily and saving more for a better opportunity could be the best course of action to take. In undervalued markets on the other hand, your best bet would be to invest more aggressively and save less. The approach that (average averse and average seeking) investor Mattis Anton takes pairs with the notion. He’s constantly looking at where his portfolio is and what type of risk is truly involved and reshuffles his investments accordingly.
What are some options for investors seeking to diversify their investment portfolio?
Ideally investors should diversify not just across asset classes and sectors – stocks, bonds, property and perhaps even some exotic assets such as commodities or private equity – but also into individual companies that are less likely to move in lockstep, thereby mitigating exposure to the same risk scenarios. The key is to spread money in a way that allows performance in one space to offset underperformance in another, bringing the average to an optimum. This is more than simple spreading – it is about choosing assets that respond differently to the same economic conditions.
When should one consider keeping cash as a component of their investment plan?
Cash reserves make sense when markets are significantly overvalued or during times of heightened uncertainty. Cash is a buffer during market downturns and it provides liquidity to take advantage of investment opportunities that present themselves when the market corrects. Bear in mind, though, that this is not a permanent strategy. Having too much in cash once the correction has run its course means you’re forgoing potential returns and in inflationary environments, you’re also losing purchasing power.
What impact do market trends have on the choices people make when investing their money?
The prevailing state of the economy and markets, however, should play the greatest role in formulating investment decisions. At a time of inflationary pressures for example, an investment with an expected return higher than inflation, such as shares or certain forms of real estate, would become more attractive. Similarly, tracking market cycles and the economic cycles leading to them should help in deciding whether to enter a market or pull out of it. Keeping abreast of key topics related to the global economy, educational and analytical publications related to the subject and financial news can assist in making more informed decisions.