The New-York Times reported on January 6, 2006 that IBM has
decided to freeze its Pension Plans once and for all. And that
it has instead decided to funnel all future contributions to its
401(k) plan alone. More large companies are expected to follow
suit, sounding the final death-knell for defined-benefit pension
plans in US.
This trend is not new, and most young workers today have no
expectations of a pension from their companies.
That means each of us has to make sure that we save and invest
for our own future retirement, which often implies developing a
portfolio north of $1 million to fund a comfortable retirement.
Boom times for Investment Advice
=================================
This ongoing shift of burden on to the average individual has led
to:
1. A mushrooming of web-sites that provide advice and information
about stocks and investing (fool.com, financialsense.com come to
mind).
2. Soaring popularity of TV shows centred around investing (Mad
Money on CNBC, CNBC itself as a business channel, Bloomberg TV).
3. The number of financial advisors increasing sharply, as
individuals and corporations seek out advisors to help themselves
and their employees. According to the Occupational Information
Network, the growth rate in this profession will remain above
average at 21-35% through at least 2012 (which means a doubling
every 2-3 years!).
4. A dramatic increase in the number of mutual funds (numbers
continue to be in the 10,000+ range)
5. And due to the tepid returns in the markets, a huge increase
in the number of hedge funds and other alternative investment
funds (significantly raising the risk profile for many investment
portfolios).
Ill Prepared
=============
Our educational system and our corporate work environment do not
adequately prepare us for the world of investing. But we are
forced to become investors nevertheless.
This has had the unfortunate consequence of forcing us into one
of two pathways:
1. Either learn everything there is to learn about investing
until we become good at it, or
2. Hand it all over to a financial advisor and hope and pray she
is a good one!
Choice #1 is hardly a real choice. Investing is a life-long
learning experience, and becoming good at it requires tons of
hard work (like any other profession).
Choice #2 is more helpful, and yet to completely hand over all
control of your financial affairs is not the best situation
either.
Most individuals begin by attempting to do it all by themselves.
But when they finally get tired of either losing money, or as
happens more frequently, making no headway, they switch to #2 -
only to wonder later if they have done the right thing in handing
over the reigns so completely.
There is however another resource which can yet save the day, and
that is the world of Investment Newsletters.
Are there good Investments Newsletters out there?
=================================================
Of course we all have seen advertisements of some newsletters in
our junk mail at home or in our spam folders. But most of those
are either new or do not have a stellar track record.
But there are several very good newsletters out there, whose
editors have a long and successful track record. Using the
excellent services of Hulbert Financial Digest one can pick out
the really good ones from the also rans.
Investment Newsletters offer that happy medium between educating
the investor and providing direct recommendations. And today,
they cover a wide spectrum of investment vehicles:
1. Mutual funds
2. Individual Stocks
3. Bonds and other Income generating vehicles
4. Gold & Other precious metals markets
and so on.
You can pick one based on your favorite market area!
Even after one has subscribed to a newsletter (or two), there
is a discipline to be applied in order to profit:
1. Do not read only a few issues
=============================
Most of the time, when you sign-up, the newsletter would have
some ongoing recommendations. Following those recommendations is
like getting onto an elevator mid-way. You may still get some
growth, but you could be close to the end. Be mindful of that
possibility. This makes it important to give the newsletter
enough time (about 2 years) to make some new recommendations and
for those recommendations to work out.
2. Follow the recommendations strictly
===================================
An error that a fresh newsletter subscriber frequently makes is
not following instructions closely enough. The individual
investor has a tendency to insert his own judgment along with the
recommendations of the newsletter editor. This causes a problem
because the editor is making recommendations from a deeply
developed sense of the markets, while the individual investor,
most of the time, is simply guessing. This combination can at
best, significantly reduce profits, and at worst, cause serious
loss of money. Stick to the advice - you are paying for it!
3. Understand investing versus speculating
========================================
In many newsletters, recommendations would be directed at a
speculator versus an investor. Understand the difference between
the two, and divide your capital suitably. Do not use money that
is meant for investing in speculation - that is no better then
betting on a gambling table in Vegas. Speculation implies a
chance for catastrophic losses. Be careful.
4. Subscribe to Alerts or Warning Bulletins
=========================================
These are extra services offered by newsletter writers in order
to be able to reach you between issues. These may be expensive,
but even one tip a year would pay for itself. Always subscribe to
these services.
5. Pay attention to what the editor is saying
==========================================
This goes beyond following recommendations closely. In fact, you
may reach a point where you ignore everything and just follow the
recommendations. Avoid that tendency. Pay close attention to the
reasoning behind the decisions, and to the accompanying charts
and graphs. This will devlop your own investing prowess to one
day enable you to go it alone if you so chose.
Paying attention to these simple principles, you, as the
individual investor, can maximize your returns from these
newsletters and be riding towards a comfortable portfolio for
your golden years.
Investment newsletters represent one of the best choices for most
individual investors to build up a hefty nest egg. You would
still be well served by having a financial advisor for other
areas of personal finance, but you would be in firm control of
your investments!
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