Sometimes they emanate from emails circulating among investors. Oftentimes they come from friends of friends who heard at a party of remarkable returns on investments.
“They” are the hottest “get-rich” quick schemes, the ones that bypass the capital market investment process and skyrocket the investor to immediate, enormous riches.
Unfortunately, it has been my experience that the road to successful investing is paved with dividend payers and other equities, bonds and bond funds, closed end funds, exchange traded funds, real estate investment trusts, and a small smattering of commodities. This road is paved with layers of intelligent decisions and its shoulder is bordered with a strong patina of patience.
A smart investor knows that he/she will occasionally experience a “down” statement, but that the well-established, stable companies whose stocks he holds are not going to disappear overnight because of one bad statement. And a serious investor will allow for a three- to five-year time horizon before he can adequately judge the success of investments.
Craig Mellow writes in Financial Advisor Magazine about an advisor whose client was certain that purchasing … dinars would provide a 100-1 rate of return. “The advisor … quickly found that obtaining dinars is problematic, let alone trading them. She advised the client against speculating in the currency.”
Frequently you hear of investors buying nothing but gold with the intent of holding only precious minerals when the world’s economy collapses. Meanwhile, though, you can’t trade gold for gasoline or bread, so it is a virtually illiquid commodity to harbor, even in relatively tranquil economic times.
Many investors hold about five to eight percent of commodities in their portfolios. This varies, of course, but pre-apocalypse, it’s hard to take a brick of gold down to Home Depot on Saturday and trade it for flowers, potting soil and a garden hose.
One year thousands of folks bought Beanie Babies, planning to sell them when their value reached its zenith. The craze died on the vine, though. Pokemon cards were the rage, but shockingly, they didn’t hold their value. My son loves baseball cards and talks dreamily of one day finding a Honus Wagner (didn’t he write operas?) in perfect condition. But wisely, he salts money away in his qualified retirement plan, instead.
If your great-grandfather bought just one share of Coca-Cola in 1919 for $40 and if the dividends were reinvested, that one share would be worth around $9 million today. Adjusted for inflation, $40 in 1919 is worth about $540 today.
Most Americans could scare up $540 by brown-bagging lunch for a few weeks and could then afford to buy about 13 shares of KO at today’s share price. Sure beats storing all those beanie babies in the closet.
Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, chartered financial consultant and accredited investment fiduciary, is the founder of Arbor Wealth Management, LLC, (850-608-6121—www.arborwealth.net), a fee-only registered investment advisory firm near Sandestin.