As we welcome 2020, it is time to review the benefits of three simple principles found within The Coffeehouse Investor and why they are more important than ever before in guiding you towards financial security during your retirement years.
A brief history – Twenty years ago, I authored The Coffeehouse Investor to help investors build wealth, ignore Wall Street and get on with their lives.
The book was published during a red-hot stock market when it seemed like everyone (except me) was doubling their money overnight in the empty profits of dot.com companies.
But, the glamour of these companies couldn’t last, and within four years, the NASDAQ index had plummeted by 78%.
During this debacle, many investors started to turn away from empty promises and began to focus on common sense found at The Coffeehouse Investor.
Let’s review the benefits of these three principles, and why they are more important than ever before in guiding you towards financial security during your retirement years.
1. Don’t put all your eggs in one basket – diversify your portfolio.
In the “good old days,” if the stock market was too volatile for your liking, you could turn to the safety of 6% CDs and get on with your life. That is no longer the case. Creating an intelligent mix between stocks and bonds is critical if for no other reason than yield on bonds and other fixed income investments are at historical lows and will quite possibly stay low for decades to come. Accentuating portfolio returns with common stocks will likely have significant impact on the growth of your money over the long term.
2. There’s no such thing as a free lunch – capture market returns through low-cost index funds
Statistics show that it is difficult, if not impossible, for professional stock pickers to consistently generate returns above benchmark averages.
Compounding that, many investors are prone to buy and sell at inappropriate times, magnifying this underperformance.
Recognizing the efficiency of markets over the long haul, and accepting the irrational nature of markets in the short run, Coffeehouse Investors embrace the simple wisdom of capturing long term returns while ignoring the short-term market swings.
3. Save for a rainy day – create your personal financial plan.
Building a smart financial plan with a detailed attention to saving (while working) and spending (during retirement), allows you the freedom to ignore the stock market and focus on what matters most of all. Creating clarity with the saving and spending components of your plan allows you the confidence to make future financial decisions, based not on what the stock market does in the coming year, but on the personal decisions you make in your everyday life.
If you want to take control of your financial destiny, following these three principles will guide you on your way.