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June 23, 2010

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By the book's own definition, James Dyson is an innovator not an inventor.

Investing in stocks for wealth is something very few people can do. Rather than trying to time the market or hone your predictive skills people need to dollar cost average into index funds. Even Warren Buffet, the greatest investor alive, has gone on record as to say that most investors will be better off in low-cost index funds. He has even gone as far as to say he doesn't expect his investments to do a lot better than the S&P:

"We think we can do better than the S&P. I would be disappointed if our portfolio didn't do a couple of percentage points better. I would be amazed if it did (much) better."

You can read more here, http://www.reuters.com/article/idUSN0628419820070507

Most people, for a variety of reasons will never be in categories 2), 3), 4) and 5).
They will end up working for someone else and later become investors.
There are few investors like George Soros and Warren Buffet that go on to became billionaires, so what are the remainder of us to do if our goal is to become a multi-millionaire.

Here's what worked for me:
Decide upon your career while still at high school. Pick a career that you like and one that you believe that you can succeed in.
Concentrate upon becoming good at the skills required for that career and pursue them through college.
Find your soulmate and partner to share your life while you are at college, bearing in mind that a later divorce can be a huge financial setback.
When you are qualified, seek out the career and company that will provide interesting, challenging work and a good salary.
Give your all to your job, be the best you can be at it, continue your education, take company training classes, come up with innovative methods that will benefit your company.
Live frugally, well within your means, save as much money as you can, put the maximum into 401K plans.
Start learning all you can about investing, don't just settle for becoming a Buy & Hold investor of the total market.
Learn how to manage risk in your investments and above all keep uppermost in your mind the two principles of successful investing which are:
Don't Lose Money
Understand the Power of Compounding over several decades.

It's not an easy path to follow. What helped me a lot was coming from very humble beginnings where, thanks to my parents, I learned the value of hard work and money at an early age.

Old Limey,

I agree with every thing you've said above. I would like to add a thought or two though. And perhaps a quibble.

Your comment on divorce is of true. Alas, not always possible.
Stay healthy too.
As for buy and hold. For me buy and hold low cost funds worked out ok. But. I would never suggest to anyone that they "Buy, Hold, and Forget"! Investments are not like the 'set and forget' rotissiere. (Even Ron says he doesn't mean that literally.

I re balanced once or twice a year. And if based on readings and other research I became uncomfortable with a fund I would get out or reduce my holdings.

I do my best whe the opportunity presents itself to pass along the thoughts you have shared above.


BillV,
Re. divorces, three years ago I helped my daughter through her divorce, it took three attorneys before we were finished and I was able to negotiate an excellent settlement for her that avoided the expense and lengthy process of litigation. The husband did not want to go through the courts because it would have been the same court where he practices and is very well known. As you probably know each party has to file a provisional, and then a final declaration of disclosure of all of their assets along with tax statements and supporting documentation and in California everything is divided pretty well down the middle. In my daughter's case the husband was a very wealthy, high income attorney with several attorneys working for him and he had her give up her very promising career upon marriage thus she had no separate income and no separate assets. The bottom line was that, after an 19 year marriage she received a multi-million dollar settlement and a very high monthly spousal support for 9 years. I haven't communicated with her ex husband since the divorce became final.

That's why I said that a divorce can be a major financial setback and is to be avoided.

As for investing, use any method that suits you but under no circumstances have a losing year.

Staying healthy is great advice for everyone. What my wife and I try to do is, eat very healthy foods, very little meat, lots of fruits and vegetables, minimize sugar, fat, and salt, no sodas or ice cream, avoid stress at all costs, exercise as much as we are able, keep weight, blood pressure, blood sugar, and cholesterol within recommended limits, use a few nutritional supplements, and have regular checkups.

Old Limey,
Yes I know about your daughter, glad it turned out well for her. No reason for you to talk to the ex.

On a different note, your last paragraph, iI can agree with everything --but no ice cream and little meat!! Yikes.

Good for you and Mrs. Old Limey.

Great topic, and I like where Old Limey took this. I was just about to type a comment on how it would be interesting to see how folks with high but not astronomical wealth got there - like multi-millionaires.

Old Limey - those are very wise words. Thanks for sharing your experience.

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