Wednesday, March 25, 2009

Systems - Investments arena

In general, American’s have quite a bit of baggage when it comes to money. The area of investing money is something we all struggle with grasping how to do well. The purpose of this article is to bring the stewardship of money into the proper perspective.

Life is full of systems. There is the ecosystem, electrical systems, communication systems, weight loss systems, the list is endless. For the purpose of this article, a “system” is a predefined process by which certain outcomes are realized.

We have all implemented systems. You even have a system for getting out of the bed in the morning. The important thing isn’t how the system works. The important thing is that you find a system that works for you. Weight Watchers may have a wonderful system to help people loose weight, but if you can’t seem to motivate yourself to live by the system, it’s a horrible system for you!

If a system ceases to work, find a new system or modify the existing one, and do it quickly!
Why so many people don't do that... I don't know. Its sad though.
But it helps to look at it from a "system" standpoint.

I encourage you to find all kinds of systems that work for you. If your system is successful, you will be successful in that arena.
As far as investments though, there are two ways to go.
1. You could handle the investments yourself.
2. You could involve someone else (whatever title they may go by) in your investments.

I’ll go into more detail about each one of those, but the important thing to remember is that you need to find a system that works for you and find a new one (or fix the old one) QUICKLY if the system doesn’t work. Don’t ever Ever EVER settle for a broken system.

From a big picture viewpoint, a person will probably have to implement quite a large number of investment systems during a lifetime.
Children typically will use piggy banks and Teenagers use checking and savings accounts (see #1). They may also use their parents as in #2 above.

Ideally these systems will continue into adulthood, and eventually you will have built up enough wealth to go to the #2 way. A professional investor or trader could possibly stay on path #1, but I think most also choose #2 to a certain extent.

Now, when it comes to average Joe starting down path #2, things get confusing and scare most of use into not even going there. The terms “Money Manager”, “Investment Adviser”, “Financial Planner” and so on mean many things to many people. That alone can make it very confusing to find the kind of person you need at your time in life to help you invest. Then people start to think about what kinds of investments the advisers will use, the associated fees, and how they will handle the money, etc. It gets confusing really quickly and then they end up just wanting the whole process over with.
I’m here to say – DON’T be SCARED AWAY! Let me make it simple for you.
Just make sure they have a system that works for them and will continue to work in the future.

How do you know the system works for them? Check out how much money they’ve made for their clients. You can ask the clients and the advisers for this information.

How do you know the system will continue to work into the future? First, gain a basic understanding of their system. Do they buy a small portfolio of stocks and manage that? Do they buy other types of investments and manage those? Maybe they outsource the investments to various people. Or maybe they just pile in up like ol’ Bernie.
Second, you have to do some reading and talking to people to figure out what kinds of investment types and systems will work in the future.
Then if you find a match between the two, you’ve found a system that to the best of your knowledge will continue to work into the future.

Why would I want to look further than this into an investment helper? What would be the point of paying them then!?

Whatever path you choose, keep an eye on your system. I think this is the most obvious thing a person can do, and the most overlooked thing.
If your system of investment stops working, or looks like it will stop working, change it up.

Part 2
So if you are looking to start down path #2 now, you are probably wondering how you can pick out a system that will work in the future. I’ve been doing lots of research and talking with experts in finances and the economy and have come to the following conclusions about a system that will continue to work in the future:
1. The stock market is very risky. You will not be able to just buy and hold an investment and watch the value increase, which is what most financial people you could hire will suggest. The stock market could just bounce around for 20 years and end up right where you started. Therefore, make sure they don’t just buy and hold, even if it is mutual funds.
2. The system will need to use investments other than stocks. These may include: hedge funds, futures, stocks, bonds, commodities, real estate, warrants, options, CDO's.
3. The system will actively manage for risk.

Any other questions – try looking here first:

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