Okay, so you're getting seriously negative real rates of interest on your cash deposits, a painless glance at your pension statement or 401K account tells you to depone otherwise all plans of retiring to the golf course, and your financial planner or fund manager is still polling the sentences while you're still taking the losses. What's an investor to do?
The only answer, as I've found, is to do it yourself. Now I know this is a hard message to sell to many people. I really can appreciate that holding down a job and keeping a family fed and watered does not leave much time for anything else in life, but if you really want to see that light at the end of the tunnel and get ahead of the game financially , then sooner or later, you're going to have to bite the bullet and take control of your own investments. The alternative is to leave your money on deposit and watch the purchasing power of your cash erode at roughly 5% per annual (at the last count), which means it would half in 12 years.
As for your stock market account, would not it just be easier to let your overcharging, underperforming financial planner worry about that? Sure, if you want to help him retire early. The bottom line here is that sitting on your hands will automatically guarantee you a poverty-stricken retirement.
The good news is, that in today's interconnected online world, there's plenty of help out there if you were thinking of going it alone. Once you've got yourself set up, it really should not take more than 10 minutes a day to monitor your investment account and keep things ticking over.
So let's deal with the practicalities first: if you want to become an independent investor in your own right and ditch the financial planner for good, the first thing you need to do is find a low-cost online stockbroker – the kind that doesnt offer advice, but charges really low taxes for carrying out your basic buy and sell transactions. A quick search on Google should soon sort that out for you.
Secondly, how do you know what's good to invest in? Simple; go back to that 21st century, interconnected, online world I talked about earlier and do a search for free online charting services. There are plenty out there (I just found a free service offered by Stockcharts for example, but that's not necessarily a recommendation of the service. You'll have to do your own due diligence). The point behind using a charting service is to find out what the trends are in the markets. In other words, the price of a share, commodity or bond can be doing one of 3 things – it can be going up, going down or trading in a range. From here, I've started delving into a few basic line charts of various shares, commodities and mutual funds to find out what's been going up over, say, the last 3 years.
This is where I can save you a bit of trouble, because, quite frankly, there is not much that's been going up over that period. By "going up" I mean investments that would have netted you a real return over and above inflation during that time. In fact, a quick cursory glance tells me that, apart from a few special market niches, there are only one or two places worthy of our attention at the time of writing this article, and that's the precious metals sector. Investors do not have many friends in this world, but one of them is the trend and we should always attempt to follow it. Gold and silver have actually been in very solid up-trends for over ten years now – friends indeed!
So, we've established that one good home for our hard-earned cash is gold, silver and maybe a bit of platinum or palladium. Until those up-trends change, there'll be no good reason to change our minds. Again, a quick online search will flag up various reputable services for the purchase and storage of precious metals.
So is that a case of job done then? Not quite – what about income? Precious metals may offer us spectacular future growth of our capital (assuming the current trend continues), but what about a bit of jam today?
This is where my 'barbell' or dual-strand investment strategy comes into play. At one end of the bar I now have my precious metals, but at the other end I like to allocate about a half of my investment funds to high yielding stocks that regularly pay out nice chunky dividends. I prefer these to growth stocks because there's an awful lot of reputable research out there to show that high yielding stocks with well covered dividends easily outperform the sexier growth stocks over any 5 year period you'd care to mention during the last century.
High yielding stocks are often companies like utilities, telecoms stocks, pharmaceuticals and the occasional oil company. These are usually solid, well-established and, dare I say it, even boring stocks to own – but in my 20-odd years of investing experience, boring is most definitely good. And how do you find out what the best yielding stocks are at any particular time? You guessed it – do a quick, 5-minute online search!
Of course, high-yielding or not, I still avoid any stock that's in a down-trend. As it happens, most of the high yielding stocks I pick for my own portfolio are in a trading range, but the main point here is that I'm getting paid while I'm waiting for the trend to emerge. And I'm getting paid to the tune of about 5% per annual overall – plus most stocks raise their dividends above the rate of inflation each year. If one of these stocks subsequently dips into a down-trend, I sell, if it goes up I hold. I like to hold if I possibly can, because it keeps the costs of running the portfolio to a minimum. It really is that simple – simple, boring and cheap – and it works.