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The Various Ages in Investing

In the first blog of this short series on how to allocate your funding, and how to decide where to put your resources to work, we asked a few general questions. The first concerned age. Basically, the first question is: How old are you?

I would have thought most people dont take money, resources, the future, and similar topics very seriously when it's most important to do so. I'm probably typical. When I was fifteen a friend of my mother's, Sir John Templeton, tried to explain money to me, and gave me rather a lot of tips on how to deal with it. At the age of fifteen I was not really interested in the stock market, or financial futures, or even bothering with a bank account. I was much more interested in girls.

Even when I got married I had problems settling down. (Those problems are still with me, but at least now they concern no-one but myself.)

The thing is, most people don't bother to think about how they are going to manage their life until at least the age of 25, and some of us come to the ghastly realisation a lot later. I didn't take anything seriously until an arm injury kicked me out of the music business, and I suddenly started to wonder about the future. I was over forty at the time, so even that isn't too late if you're smart.

As I have said in many of my articles, the most useful servant you will probably find in life is MONEY. You can and should put it to work for you. It's amazing how much work it can do, and it has this great advantage that it grows over time. Most human servants get old and decrepit, and create less value over time. Money is the opposite.

When you are young or relatively young you should be seeking to build up your staff. The more you've got working for you the better. This means you should be looking to invest rather than spend. The more you spend, the more you deplete your most financially important asset, or servant. Why waste servants when you need them?

I long ago decided that I wanted as a minimum a clear 10% plus gain on my wealth a year. That is relatively easy to achieve, although rather a lot of people look puzzled when I say that, and refer me to the interest they get from their bank savings account.

If that describes you, all I can say is you are in a mess and need to wake up and do something about your life or you will be going forever backwards.

Do remember there are two sides to any financial calculation. The debit and the credit sides. When it comes to calculating interest rates most people forget the debit side. At the moment inflation rates across most of Europe are approximately 5%. That means that if you are getting 2% interest on your money, your growth rate is negative. Your savings are depreciating by 3% a year. That's idiotic. That's why I prefer to say I want a 10% return on my investments, plus interest cover, rounded up. That means one should be aiming for a minimum return of around 16% at the present time.

Where do we get that?

Simple, I'll tell you when we come to the maths in this series. At this stage in proceedings we are simply discussing principles.

OK, that's the first move. The second is to establish a fund to aim for the stars. Your 'safe' investment brings you in that small, but basically secure return which you can expect to help maintain your current wealth. However, you will naturally need another instrument in order to turbocharge your investment account.

The secure investment account will probably be invested in real estate, or companies based upon real estate. You will also be investing in solid companies that have been around for a long time, are AAA rated, and paying a comfortable dividend.

In both these categories you need to be aware of timing. The best time to invest in the stock market is after a crash. The cheaper you can buy a stock, the higher the dividend. This means that in the normal scheme of things you would look to buy stocks after a crash that appears to have settled, or buy real estate when interest rates are high (thus discouraging other buyers which will bring prices down), but only when those high rates start to come down.

Whenever you buy any investment the most important thing to check is the risk/reward ratio. You want the risk to be low and the reward to be high. In other words you need to enter what is effectively an asymmetric bet.

This is why I so like crypto investments. You can buy into a product for a tenth of a cent. If you put in 1,000 that is the most you can lose, and probably only lose half at the worst. But the upside is unlimited. Your investment only needs to rise to a fifth of a cent for you to double your money. If it isn't capable of that, then you invested in a bum instrument.

Next week I will have a look at a series of asymmetric investment deals and see if we can decide where to put our money for capital return on the basis that if we screw up we won't do too much damage, and as we are still young, we will be able to recover. The older one gets the more difficult it is to rebuild one's capital base, which is why, as we approach retirement age our priorities change quite drastically.

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