Over years of making and learning from financial mistakes, I’ve developed three very simple investing principles:
- The investment has to be simple.
I have to be able to understand it completely. Many variable annuities would fail this test. They’re very difficult to understand. I don’t even look at an investment like that for myself. It doesn’t fit my profile, so I just throw it out. - It has to have a price that I can follow online.
No black box investing like oil wells or unit trusts whose price I can’t follow. - It has to be low-cost.
Variable investments, for example, are not low-cost – so I don’t consider them.
If an investment meets all three of these qualifications, I’ll consider investing in it. If it doesn’t meet them, I don’t even bother trying to understand it. Correction: I do understand them for reporting purposes, so I can write about them, but for my own investment portfolio, no.
If you just follow simple rules like these, you never have to worry about all the other investments that are out there.
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Hi Jane, Can you explain a ‘variable investment’ and give examples please. Are you referring to shares, or something that has fluctuating interest rates?
Also can you also explain the term ‘Mutual Funds” I come from Australia and I am wondering if we have a different name for them here. I’d appreciate your input into clarifying this for me. Di
Hi Dianna,
A variable annuity is really two investments. One is an annuity, which is an insurance-based instrument designed to provide income. The second is an investment, usually in the stock market, for the purpose of growing the investment sufficiently to provide income for a longer period than a fixed rate payment.
Mutual funds are professionally managed investments consisting of cash, bonds and/or stocks for which an investor pays a management fee, ongoing maintenance fee, and sometimes a sales fee if it is purchased through a professional advisor.
Hope these answer your questions.