The Unique Property
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
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
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
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
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.