Income-boosting resources for commercial writers (a.k.a. copywriters, business writers, corporate writers, marketing writers, etc.)
WELL-FED FOR LIFE: HOW TO INVEST IN (CASH) COWS
I’ve been working with a financial planner for close to 20 years now, and it’s one of the best decisions I ever made. I’ve come to realize how important regular investing is, and not just because it’s a “savings program.”
For me, investing has become habit; I consider my monthly investments like any other financial obligation—no more optional than a mortgag payment or cell phone bill. And that’s how you start building for the future—by treating investing as a necessity, not a luxury.
With my advisor’s help, and driven by my goals, timetable, and overall risk tolerance, I set up and continue to fund (through automatic monthly contributions) my own retirement plan as well as other investment vehicles. I am immune to “hot stock tips,” cutting-edge gas lease programs, “ground-floor” opportunities or other “gotta-get-in-now” opportunities.
In boring, predictable fashion, I just stay the course, month after month, year after year. I’m in it for long haul, and through regular systematic investing (and mostly through mutual funds, which diversify the risk), I’m doing what’s known as “dollar cost averaging.” What’s that? Let’s “The Cow Story,” a fun and illustrative tale, explains the concept:
For me, investing has become habit; I consider my monthly investments like any other financial obligation—no more optional than a mortgag payment or cell phone bill. And that’s how you start building for the future—by treating investing as a necessity, not a luxury.
With my advisor’s help, and driven by my goals, timetable, and overall risk tolerance, I set up and continue to fund (through automatic monthly contributions) my own retirement plan as well as other investment vehicles. I am immune to “hot stock tips,” cutting-edge gas lease programs, “ground-floor” opportunities or other “gotta-get-in-now” opportunities.
In boring, predictable fashion, I just stay the course, month after month, year after year. I’m in it for long haul, and through regular systematic investing (and mostly through mutual funds, which diversify the risk), I’m doing what’s known as “dollar cost averaging.” What’s that? Let’s “The Cow Story,” a fun and illustrative tale, explains the concept:
THE COW STORY
A man decides, at his advisor’s urging, to invest in cows at $100 a month. In Month #1, cows are selling for $100 each, so his investment buys 1 cow. An news article the next month claims that e-coli bacteria from cows has caused an epidemic. The price of cows falls to $50. His advisor urges him to buy 2 cows despite the man’s disbelief. His $200 investment is now worth $150 (3 x $50), a -25% return.
Next month, mad cow disease rages nationwide. Price: $25. Advisor: Buy more. Four cows this time. His $300 investment is now worth $175 (7 x $25), a -42% return.
Next month, a top medical journal claims beef causes cancer. Price: $10. Advisor: Keep investing. Ten more cows. His $400 is now worth $170 (17 x $10), a -57% return.
No bad OR good news the next month. Price: Still $10. Buy 10 more, says the advisor. His $500 investment is now worth $270 (27 x $10), yielding a -46% return.
Next month, the epidemic subsides and the bovine link is debunked. Price: $25. Four more cows. His $600 investment is now worth $775 (31 x $25), a +29% return. By the next month, mad cow disease is considered a fluke. Price: $50. Two more cows. His $700 investment is now worth $1650 (33 v $50), a +136% return.
A month later, a beef study shows it actually reduces colon cancer. Price: $100. One more cow. His $800 investment is now worth $3400 (34 v $100), a +325% return.
Note that the price never rose above its original amount but he still enjoys a 325% return. THAT’S “Dollar Cost Averaging.”
Same with my investing plan. Each month, I invest a fixed amount of money, which buys shares of different funds. If the share price has dropped since the previous month, it means my monthly expenditure buys more shares.
During prolonged down periods, you load up on shares, and when prices rise, your portfolio value jumps. And yes, that also means that rising market prices will reduce the number of shares purchased, but again, you’re being insulated from big swings.
Next month, mad cow disease rages nationwide. Price: $25. Advisor: Buy more. Four cows this time. His $300 investment is now worth $175 (7 x $25), a -42% return.
Next month, a top medical journal claims beef causes cancer. Price: $10. Advisor: Keep investing. Ten more cows. His $400 is now worth $170 (17 x $10), a -57% return.
No bad OR good news the next month. Price: Still $10. Buy 10 more, says the advisor. His $500 investment is now worth $270 (27 x $10), yielding a -46% return.
Next month, the epidemic subsides and the bovine link is debunked. Price: $25. Four more cows. His $600 investment is now worth $775 (31 x $25), a +29% return. By the next month, mad cow disease is considered a fluke. Price: $50. Two more cows. His $700 investment is now worth $1650 (33 v $50), a +136% return.
A month later, a beef study shows it actually reduces colon cancer. Price: $100. One more cow. His $800 investment is now worth $3400 (34 v $100), a +325% return.
Note that the price never rose above its original amount but he still enjoys a 325% return. THAT’S “Dollar Cost Averaging.”
Same with my investing plan. Each month, I invest a fixed amount of money, which buys shares of different funds. If the share price has dropped since the previous month, it means my monthly expenditure buys more shares.
During prolonged down periods, you load up on shares, and when prices rise, your portfolio value jumps. And yes, that also means that rising market prices will reduce the number of shares purchased, but again, you’re being insulated from big swings.
“Well-fed writing” doesn’t just mean eating well today or next month. There’s no reason it can’t mean writing for a living and still carving out a comfortable retirement. Obviously, even a great financial planner can’t control the stock market, but he or she can help you sleep well
at night by structuring a portfolio that takes into account the inherent volatility of the market.
The key? Start with something. I don’t care if it’s $50 a month (though keep adding to that as you can), just start a regular investing program. The magic of starting is that when it become a habit, you no longer think twice about it. It become automatic, and so does the growth.
If you’re not saving now, resolve to make it so in 2015!