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Are You Getting 20?

September 20th, 2006 at 02:25 pm

Have you looked at your stock/mutual fund portfolio in disgust? Are you not getting the returns you deserve? Wondering where you should cast the blame? Want to take revenge on the person that is giving you skimpy returns? Walk to the closest mirror and slap yourself in the back of the head. You don’t control the market, but you do control your financial decisions even if you are with a broker. It amazes me how long people will stay with their financial planner or broker while getting substandard returns on their portfolio. Would you keep your job if you knew about an identical position with another company that paid three times more? Doubt it! So why are you staying with your broker/financial planner? I’m not saying to leave the company after a couple of bad years, but I would recommend looking around if you’ve had five consecutive years of poor returns.

Shopping around shouldn’t just be for clothing and electronics. Finding a good place to have your investment/retirement accounts is key for financial independence. I currently have two different investment portfolios. My first portfolio is with a mutual fund company that holds 40% of my retirement account. The rest of my portfolio is for purchasing individual stocks using an online broker. Since the inception with my mutual fund company I have received an average of ~18% return a year.

1st year was ~21%
2nd year was ~19%
3rd year was ~12%
4th year was ~17%
This year since January 06 ~8%

My stocks have increased ~11% since January ‘06. How have I received such high returns on my investments? I have to admit to one thing about my mutual fund return. I was really really lucky the first two years. I just picked small and large value mutual funds and lucked out. After year three, I studied what other great investors were doing. After reading Rule #1, The New Buffettology, and The Four Pillars of Investing I had a new insight on investing. Those books all had different strategies to build wealth using stocks, but there was one parallel between all of them and that was long term growth.

Like the world’s greatest investor, Warren Buffett, once said “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.” Buying the “hot” new stock is a fad that he does not like getting involved with. Buffett has always liked buying stocks at a value that he can predict getting a great return because of the way the businesses do business. Check out what securities are included in Berkshire Hathaway.

One of the dumbest things you can do is go into the stock market uneducated and expect a high return, or even a return at all. “The first rule is not to lose. The second rule is not to forget the first rule.” That statement is the formula that Warren Buffett has lived by for over 40 years and it has really paid off. Realistically, I do not expect to receive his 23% return a year for the next 40 years, but I do expect to obtain over 15%. It is an achievable goal that if you purchase and hold securities correctly you can get an extremely high return. Always look at the big picture when it comes to retirement because you end up living half of your life in it!

Recommended reading list for this article

The Intelligent Investor

Rule #1

The New Buffettology

The Four Pillars of Investing

3 Responses to “ Are You Getting 20?”

  1. LuxLiving Says:

    I have just been rereading my Buffett books again this week!

  2. Broken Arrow Says:

    Now that is a good article, right there.

    I've been a huge fan (dare I say, zealot?) of Warren Buffet for years.

    And even though he has a dizzying intellect, the principles upon which he bases his investment decision on isn't that hard to grasp at all!

    In fact, it's so... dirt simple that I'm surprised that more people don't use it (and sometimes, those that do will forget).

    I know a couple of people *cough* in the forums that could really take something like this to heart.... But then, less hands grabbing the same pie is good for me! Big Grin

  3. JRBeaudry Says:

    Yeah i know what you mean. The funniest thing about it people are like I want to have his kind of returns..... which they totally could. All you have to look at is wants in the portfolio and purchase them when the stocks are low. Pretty simple

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