Investing - A matter of trust

Thursday, September 3, 2009 |

I am currently reading Straight Talk on Investing: What You Need to Know, written by Jack Brennan, Chairman of The Vanguard Group and previously the CEO and Chairman of The Vanguard Group. So far, I really like this book. In one of the early chapters, Jack Brennan discuss about whom to trust in the act of investing. He listed four things:

Trust Yourself

A lot of people has problem trusting their own judgement about investing. That is why I think a lot of people follow the like of Jim Cramer and follow his stocks recommendation. When they hear someone, such as their friends, make a killing on an investment, they envy it. I was in this situation before I learn the hard way that trading is not investing. When my colleague used to tell me that the stock he is investing right now is doing well, I have a tendency to put my money in the same stock. But it was too late then. And when my other co-worker got into option trading and making profits, I tried it too. Again, I lost money "investing". The problem was that I didn't trust myself. I didn't think that I could make sound investment decisions.

Now I am a lot more confidence on my investment strategy.  I invest in passively managed index funds.  I have set up an asset allocation that I can be comfortable in.  During this recent downturn, I continue to believe in my strategy and has continued to contribute more money in my investments, both in my tax deferred accounts and my taxable accounts.  I no longer pay attention to hot tips or try to follow the trend.  I actually view the current market as buying opportunity. I don't spend a lot of time doing research on each of my individual investments.  If I heard someone makes a lot of money on certain stock, I don't envy them because I have my own investments goals and objectives.  And I know it will be hard for that person to keep the performance and continue to beat the market in the long run.

Trust the Financial Market

If you don't think the growth will occur in financial markets over time, then you shouldn't even have money in the market.  You should stay with those safe options, such as money in savings or certificate of deposits or may be U.S. Treasury bills.

I believe U.S. economy will continue to grow.  And I believe international economy will continue to grow too, especially the emerging market.  However, there is risks in investing in stocks.  And there will be up and down in the economy, but over the long period of time, the world economy will have an upward trend.

Trust in Time

Time and the power of compounding are investment best friend.  Albert Einstein said:
“The most powerful force in the universe is compound interest”
It is best to start early to reap the most benefits of the power of compounding.  Jack Brennan emphasizes that you must reinvest all the income and dividends, instead of taking them in cash (which is one reason why I prefer mutual funds instead of ETF since it is much easier to reinvest all the income and dividend with mutual funds. I will try to do a comparison of Mutual Funds vs ETF in the future).

Find a Financial Provider You Can Trust

If you don't know about the financial provider and can't trust them, why put the money with them.  If you are going to have a financial provider to handle your investment, you may want to understand how your money is managed.  Don't be a victim, such as those that invested with Bernie Madoff.  Jack Brennan listed four information that a trustworthy provider of financial services should be able to provide upon request:
  • A clear and complete explanation of the fees you'll be charged.
  • A record of the company's past investment performance.
  • An explanation of how the performance of your own investments will be reported to you.
  • A clear understanding of how the company will respond to any questions you have.
It is amazing how the things listed above would have helped most people avoid Bernie Madoff or other investment fraud.


How about you? Do you trust in yourself, in the markets, in time and in your financial provider? If not, then do some homework then get yourself to the proper investment strategy. And there right moment to start investing is always now.

* Photo by Joe Nangle


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