How to Invest…
Money for Life is not about investing.
Americans have been deluded into thinking that they can use income to “invest” their way to wealth. It’s simply not true. An estate of any value needs a foundation. Our forebears knew this and built the greatest economy in the history of the world because they built it on a solid foundation. They knew that anything you “buy” - including investments - puts money in someone else’s pocket. The broker or seller derives income - real money - from your purchase and you receive only potential. Included in that potential is the possibility for loss.
Money for Life is about building your foundation.
Investing can enhance wealth. Luck and wisdom allow some investors to achieve wealth through investing alone. Most successful investors, however, have derived their initial investment capital from a foundation of assets that they developed by saving and reinforced as they gained wealth. Remember, you can lose everything you invest. Your financial worth at the end of any decade, year, month, day of hour can be significantly less than it was at the beginning of that time period. Ben Franklin’s “a penny saved” admonition is just as true today as it was in the late 1700’s.
Here’s the Money for Life “How to…”
When you “invest” you are trading money for what can generically be called “equity” or “ownership”. If the money you use to buy equity is transferred entirely and permanently, then that money is always at risk. If, on the other hand, you pledge to replace the money you transferred to equity, that money is secure even if the entire investment is lost.
Here’s and example. Tim bought some shares of MCI Corporation at a time when Tim believed the company would survive. Tim borrowed the money to buy those shares from his “bank” - a whole life policy that had significant cash value. MCI went broke, Tim’s entire share of equity became valueless and he gained nothing from the transaction. Tim did not, however, lose the money that he spent to buy the stock. He repaid the entire amount he borrowed from his “bank”. Tim’s next investment buy was Google. He used the same tactic, repaid his “bank” what he borrowed and - by the way - also recovered what he lost on MCI.
The point is this. If you have money to invest - an asset under your control; a part of your foundation - and you can pay back what you draw out of your foundation, then investing is fine. If you get the money for your investments from your paycheck or fail to reinforce your money foundation, you will likely end up running out of money before you run out of life - like 90% or more of Americans.
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