Sunday, January 15, 2006

Investing versus Speculating- Financial Safety and You-part 1 of 2

Investing versus Speculating- Financial Safety and You

For most of us, the biggest threat to our own financial safety is not the Government, liberals or neo-cons, George Bush, or even the Chinese, but our own beliefs and superstitions about economics, investing and saving.

Danger- False Assumptions!

False assumptions about investments and markets, and yours or someone else's "infallible" ability to predict their future performance, will cause you a lot of financial pain, sooner or later.

Investment Fallacy Number One

As far as financial safety goes, the single most damaging belief that you can have is the one that says the future performance of markets is knowable and predictable.

Reality Bites

In reality, the only thing that we can predict about the future is this: that it will be entirely unpredictable.

What This Means For Your Long Term Savings

As the future of all markets is entirely unpredictable, what this unfortunately means is that if you "invest" money you cannot afford to lose [ie long term savings] in any particular market , or group of markets, based on the predictions of future events, regardless of whether they are predictions from a highly respected investment advisor or economist, a "hard money analyst", the government, the Federal Reserve, your Auntie Mable who is "good with stocks", a "technical analyst", a "fundamental analyst", a tea-leaf reader or "Uncle Tom Cobley and all", you are not investing, but speculating [gambling], with money that you cannot afford to lose [i.e. your long term savings.]

Not that there is anything wrong with speculating [gambling]- the problem is that for most of us, when we believe we are investing for our future we are actually taking dangerous speculative risks, simply because we assume that "financial experts etc." can indeed predict the future performance of markets.

Investment Sanity- 4 Steps

The First Step

The first step towards investment sanity simply involves humility, a humility that leads to your own admission of your own inability to regularly predict the future performance of any market.

The Second Step

The second step involves an admission that no-one else can predict the future performance of any market either - that all of the so-called experts are just as stupid/blind as the rest of us !

The Third Step

The third step is to start thinking seriously about how to construct a long term savings plan that does not rely on _anyone's_ supposed ability to predict future economic events.

The Fourth Step

Review the information at my website under financial safety [www.onebornfree.com] then get in contact with me at: myquestions@onebornfree.com

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