Timing Or Time In?

It always amazes me that Warren Buffet, one of the world’s richest men and long standing investment guru, the sage of Omaha, is constantly ignored both by the public and the press.

He has a few golden rules that most don’t follow, so here’s a few of them to consider.

  • Invest in what you know

If you know nothing about investments or very little then why are you doing it yourself? You wouldn’t rewire your house or worse, fix a gas leak so why play with your retirement fund? Reading the financial press will give you the Iceberg effect, it will make you think you understand what’s going on but really you can only see what’s at the surface, the rest of the knowledge is beyond your grasp deep below. This is why I always ask a solicitor such as Pudsey Legal for legal advice instead of going online; I won’t get the full picture from Google. How many times have you used a medical analyser on your phone or computer and found that you’ve diagnosed yourself Ebola or some other tropical illness instead of a bad cold?

  • Invest in companies that can afford to pay good dividends

How many people have decided that it’s the right time to buy in to Shell or BP? Rio Tinto or perhaps RBS because they’re cheap? Can they afford to pay dividends from profits and not savings? Many invest in a FTSE 100 Tracker without realising that 8 companies produce more than 70% of the FTSE 100’s dividend income. Looking at the FTSE 100, how many are banks, mining and oil? The bulk is the answer, and how well are all these areas doing?

  • It’s not timing but time in that makes the most money

This is by far the most important advice from the Sage. Even the best and most experienced fund managers struggle to get the timing right, with all the research at their fingertips (and I don’t mean they read the Times Money supplement).

Timing the market is to say the least like predicting the lottery numbers, some would say impossible. What we do know is that the longer you are in the market the greater potential for returns. Consider the poor returns from the FTSE 100 since 1999 to today. From top to bottom the FTSE still hasn’t found its feet and is well below the highs of over 16 years ago, however if you add up all the dividend income from all those years you won’t have such a negative picture. What if you pulled all your money out in 2008 and re-invested in 2010? Most of the losses, with very little of the upside.

We are creatures of emotion and remain slaves to it, especially when it comes to our own money. Having someone else look after it removes a big chunk of emotion, namely yours. I’ve attached a nice representation from Intrinsic to illustrate the problem with timing and our emotions. (I will use Intrinsic’s approved ‘How Emotions Affect Decisions’ document to illustrate this)

I am not advising you to use any products mentioned here, nor am I making a specific recommendation. The value of pensions and investments can fall as well as rise. You may get back less than you invested.

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