Investing is a Way of Life

I have been thinking about purchasing a new car recently and this whole process has reminded me how many of life's decisions are better made when they are looked at as an investment. This also includes non-financial decisions, since just about all decisions we make involve a time, energy or emotional commitment. Some people might think I'm a little over-the-top to think this way, but this view on life can pay for itself many times over, just as a good financial investment can.

My current automobile has proven to be a worse investment than I would like to admit. This might have something to do with the fact that I suppressed a few of my governing principles when I made the initial purchase. I have since become a bit wiser and committed to not make the same mistake again. I am considering the total cost of ownership with the potential new purchase, including value, reliability, warranties, resale value, practicality and so forth. This is how any major purchase or decision should be viewed. Hindsight is 20/20, so we will never make all our decisions perfectly, but investing time up front and considering the total cost of ownership of an investment approach or financial advisor relationship is crucial.

In regards to the auto purchasing, there are many great values available right now, along with tax incentives. If you happen to be in the market for a new car (remember total cost of ownership) I have a link here on my blog to TRUECAR, a great new site that helps you discover what people are "really" paying for their cars. Cars are a neglected side interest that I have, so maybe I will blog more about the auto industry in another post later on.

Long-Term Thinking

Many trusted, well-grounded professionals in various fields will agree that true success rarely comes without discipline and a long-term perspective. Due to the amazing advances in technology and the pace of change in the world today, one might think that success can easily be achieved overnight. This does happen on occasion, but it is more the exception than the rule.

There are also great risks in approaching things with a short-term perspective. One need not look any further than Wall Street and the recent meltdown to see what happens to companies, financial markets and entire economies in this case, when too much emphasis is put on growth or profits in the short-term. The changes in the U.S. real estate market are also an example of how emphasis on short-term profits from "flipping" homes has wreaked havoc on many Americans, well beyond the guilty profiteers.

A recent analysis I did on the returns of a well-diversified portfolio showed that the typical average returns of various investment assets have not held up in more recent history. On the other hand, these returns do occur when the investment time horizon is extended to a generation or longer. This analysis, along with personal experience throughout my lifetime, confirms that achieving exceptional returns from the implementation of proven investing principles is a disciplined, long-term process.

What is Investing?

The dictionary states that investing is "to put (money) to use, by purchase or expenditure, in something offering potential profitable returns, as interest, income, or appreciation in value." Somewhat similarly, I like to define investing as an investor supplying capital to an investment market with an expectation of a future return. The expected return is dependent upon the market that is invested in and the risk commensurate with that market.

Many investment "managers" or "professionals" use the term investing to disguise purchasing of a product, gambling, or other types of irrational speculation. They claim to know better than the aggregate knowledge of publicly traded markets or have access to pricing "mistakes" that few others are aware of. Achieving investment returns greater than the market are only possible when taking on above market risk. This increased risk often becomes inappropriate to the point that investing has morphed into speculating or betting. The majority of the investors I know do not have the means or desire to take these type of risks with their savings or future retirement assets. As I continue to share my thoughts on investing, I will expand on ways to actually implement these ideas.

Life is a Risky Proposition

All parts of life involve risk. We all take risks with our travels, our relationships, our health, our purchase decisions and our investments, among others. Recent history has proven to be an especially risky time in the world of finance and investing. Despite these risks, we all turn to our inherent values or attitudes and move forward in life. My personal experience, education, struggles, training and common sense has taught me a bit about how to quantify these risks and deal with them in a sensible way. I have decided to begin publishing this blog in order to share some of my "sage" ideas and advice in the world of investments, financial planning, taxes and various other practicalities.