Happy New Year to all my readers! This month is a great time to plan for the year ahead. Below are some resolutions you may want to consider for helping you earn more in 2014.
Resolution #1: Become an investor not a speculator
In 2014 resolve to become an investor not a speculator. Speculation is buying stocks (or mutual funds, ETFs or index funds) without any knowledge of what you are investing in. People fall into the trap of buying stocks based on “hot” stock tips, or recommendations from friends. In the book “The Intelligent Investor” Benjamin Graham describes the difference between investing and speculating as: “An investment operation is one which, upon through analysis promises safety of principle and an adequate return. Operations not meeting these requirements are speculative.”
The key is to understand what you are investing in. Make sure you are buying a quality investment based on facts and avoid “hot tips”.
Resolution #2: Reduce your investing costs
All mutual funds have fees, known as the Management Expense Ratio (MER). Even a fee of 2.22% can take a huge bite out of your investments. For every $10,000 you have invested in mutual funds more than one third is lost to fees. For every $10,000 invested you will lose $3,367.80 in 15 years*. After 25 years the amount lost will be $5,613, more than 50% of your initial investment!
Michael James provides an excellent example of how many extra years of work is required when you invest in high fee mutual funds. Take a look at Michael’s example here:
“So, if Katie manages to keep her expenses down to 0.2% per year (including MERs, commissions, and spreads) using inexpensive index ETFs and trading infrequently, her projected retirement age is 61. If she invests in the Investors Canadian Growth Fund with total fund costs of 3.02% per year, Katie’s projected retirement age is 75. That’s 14 extra years of work to pay the higher fees.”
The ideal solution is to avoid MER’s, one way to do this to invest on your own by focusing on quality dividend paying stocks. I’ve provided another example of Mutual Funds versus Simply Investing here.
*The mutual fund fees are calculated using the Mutual Fund Fee Calculator. Assuming an MER of 2.22% and no loads, after 25 years $10,000 invested in Mutual Funds will cost you $5,613 in fees.
Resolution #3: Learn how to invest
In 2014 learn how to invest for yourself by yourself. No one cares more about your money than you do, not your financial planner, or your mutual fund advisor. Therefore it is in your best interest to invest on your own. You’ll also be able to reduce your expenses, and control your own financial destiny.
My online Simply Investing Course is the best and quickest way to learn how to invest successfully; you can watch the first module for free here. In the course I cover everything you need to know, and give you a simple automatic approach to investing confidently.
Take the steps today to ensure a successful 2014!
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