Three rules for investors

Russell Moidowan

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THE BOTTOM LINE

AS A long-term investor, there are three rules which you should always bear in mind.

If you evaluate every possible investment opportunity with these three rules, you will be more able to determine whether these invest- ments are compatible with your overall objectives.

The first rule is: “pay yourself first.” This is an important rule because so often we become so caught up in the whirlwind of daily living and bill-payiag that we ignore longer-term goals. It is extremely important to set goals for the future and to then make arrangements to achieve these goals.

For example, if you need to save $10,060 per year in order to have sufficient funds for your retirement, you should set up some sort of plan today to have that $10,000 deduct- ed from your pay cheque or your bank account in equal installments.

This way, you never even see the money and therefore can’t be tempted to use it. “Paying yourself first” simply means taking the nec- essary steps to make sure that your long-term goals are going to be met.

What is an appropriate amount for saving?

Naturally, this answer is differ- ent for everyone and will depend on your income and your stage of life with the expenses associated with that stage. A good rule of thumo is to save 10% of your net income.

The second rule of investment planning is that it pays to be an owner rather than a lender. There are (VO Ways to invest: one is to lend your funds to a company or a government; the other is to own a business.

When you are a lender, the eati- ty to which you lend your funds will promise to repay those funds at a pre-arranged date in the future and will pay you a pre-established amount in the meantime for the use of those funds.

While this can certainly be an attractive and conservative way of earning a return on at least a por- tion of your investment portfolio, studies show that, over time, invest- ing this way will barely keep up with inflation and taxes.

You should also consider being an owner. This can be accom- plished by owning your own busi- ness. For many individuals, the eas- iest and most profitable way to be a owner is to purchase common shares of individual corporations.

When you purchase a share of a company, you actually become a part-owner of that company, with a say in how that company is man- aged (provided they are voting share) and a share of its profits (through dividends) and its futu-: growth. (As the company grows

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you need to have at least $50,000, Whereas the smallest mutual fund javestment buys vou a diversified inini-portfolio,

The Bottom Line is this: in the long run, stocks tend to give better returns than GICs and term deposits. Diversification is key to reducing risk and one of the best ways to accomplish this is through high quality mutual funds. Contacting an investinent advisor will reveal your options and alter- natives and help you identify your long-term investment objectives.

Russell Moldowan is an invest- ment advisor in Vancouver, He advises on investment managenient and retirement planning. Call or write to Russell at (604) 661-7473, P.O. Box 10342, Pacific Centre, Vancouver, B.C. V7¥ 1H6. +

and it share price inereises, you Gan cur a capital gain if you sell your shares ata higher price than you paid for them).

Studies show that common stocks tend to out-perforn all other investinent classes, and indeed, are the only investments that have con- sistently kept pace with inflation,

The third rule is that itmakes sense tu take advantage of the wide array of managed products.

For the average investor, it does not make sense to try to pick one or two stocks which will outperform all others, [tis much safer to pur- chase a mutual fund which has objectives consistent with your own so that you benefit from the profes- sional management of the fund.

In order to construct a properly diversified portfolio of equities,

NEWS photo Terry Peters

DARREN CLARKE, a fourth-degree tae kwon do black belt, stands in front of his new studio at 385 North Dollarton Hwy. in North Vancouver. Clarke began his martial aris training in 1975, and has been teaching on the Nortin Shore for the past five years. For more information cail 924-0446.

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