Shearwater Capital - Learning Center

Serious Business

Many of my male acquaintances seem to regard investing as a game or competition. Women tend to be a little more sensible. However, they are often relatively inexperienced due to a misguided societal tendency to categorize investing as a masculine discipline.

Somehow the men have missed the point. Investing is not a test of manhood. It is a serious commitment of one's capital to the pursuit of some very important goals, such as:

A dignified and worry-free retirement
Educating one's children or grandchildren
Providing care for an aged parent
Leaving a meaningful financial legacy to one's heirs
Contributing to charitable organizations

What can you do to improve your chances of achieving these goals? I suggest you start by learning more about investing. As an investor, knowledge is your greatest asset. Here are some other tips that will help you achieve your investment goals:

1. Avoid credit card debt.
Credit cards are great if pay them off every month. If you don't, you are effectively flushing money down the toilet. Let's assume you have a credit card balance of $5,000. If you make the minimum monthly payments and don't charge another penny on the card, it will take you about 30 years to pay off your balance. That's not credit; it's robbery. Before investing a dime, pay off those credit cards.

2. Start now.
The earlier you start investing, the easier it will be to achieve your financial goals. For example, if you invest $158.13 per month beginning at age 20 and keep it up for 40 years, you will have $1 million in your account when you reach 60 (assuming a 10 percent rate of return and no taxes). If you don't start until age 40, you'll have to invest $1,317 each month to get your million dollars by age 60.

3. Take full advantage of tax-deferred investments.
Invest fully in your 401(k), IRA or other retirement plan. Be sure to maximize any matching contributions offered by your employer. If you change jobs, resist the temptation to take the money out of your 401(k) and spend it. Look for ways to increase your tax-deferred investments. For example, if you have a part-time business on the side, you may qualify for a SEP-IRA or Keogh plan, in addition to your main retirement account.

4. Get market rates of return.
Invest in broad market index funds and hold onto them through good markets and bad. As simple as this sounds, most people don't even come close to matching market returns over their lifetime. They are too busy trying to pick the next hot stock or attempting to time the market by trading in and out of mutual funds.

5. Minimize taxes and expenses.
The best way to minimize taxes is with a tax-deferred retirement account. For your personal account, try to avoid short-term capital gains, which are taxed at the same rate as your ordinary income. If you have unavoidable capital gains, consider offsetting them by liquidating a losing stock or mutual fund position. Pay close attention to mutual fund fees and other investment management expenses.

March 1, 2001

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