Thursday, January 3, 2013

It’s all worth the sacrifices

I’ve got to tell you about something I realized recently. I was contemplating for a few days whether to write about this or not but I gave it a go so that readers like you and me will be inspired. Since it is the beginning of 2013, let’s get everything right especially on our finances.

I will tell you about a story of two friends (not related to the writer) who had very different stories when it comes to handling challenges in investing in mutual funds.

Mutual Funds for me are the simplest type of investments one can get without the hassle of studying everything about ‘everything’ regarding the up and down trends in the stock market. One can simply listen to a Mutual Fund educator/financial adviser, assess risk appetite and get a mutual fund that matches your profile. I don’t know why so many [Filipino] people are not yet into this type of investment and if they are, most of the times they just “wanted to try”, “test the waters”, “invest a little then forget about it”.

I am not saying that “wanting to try” and “testing the waters” are bad. They are actually good because they urge you to do it. They push you to try it. But the question is how long a trial is? If it gives you good profit, will you put everything and pray for it to grow further? If it gives you bad profit, will you be afraid and take away everything and leave? How long can you sustain?

The goose that lays the golden eggs
Everybody knows about the story of the goose that lays golden eggs. It has been taught since elementary days but (kindly excuse me) teachers cannot relate it to real life because teachers themselves don’t know how to manage their goose.

If you have a goose that lays golden eggs, will you sell the eggs all at once? Or will you wait for them to hatch to lay golden eggs too? Or will you sell the goose and make big profit from it?

Now let’s get back to the story of two friends Howard and Edgar. Howard and Edgar have common financial goal and that is to be financially free by the time they reach 50. So they meet with friends who have the same goals and discuss things that can fast track them to achieving their goals.

One friend suggested riding on a mutual fund because mutual funds pose lesser risks than indulging in direct stock market. Another friend suggested they will be better off with direct stock markets and will be more involved with their wealth accumulation hence giving them a sense of pride to what they are doing. With all aspects in mind, Howard and Edgar decided to try both. 

After a few months, Howard became more comfortable with investing in mutual funds because he wouldn't like his job to be affected by studying loads of charts and jargon in the stock market arena. He diligently invests a constant portion of his salary each month and whenever he gets a raise would place it in his fund on top of his monthly placement.

On the other hand, Edgar placed a minimal amount in his mutual fund and decided to go on with direct stock market trade. One reason he cited was the difficulty of investing in his mutual fund. He has to meet his broker every time he wants to invest and he doesn't like that. He is a type of person who wants to get himself involved so he favored direct stock market more than mutual fund. He was involved in it for the first 2 years but grew tired until such time he was not able to follow the trends and lost money.

A few years went by Howard and Edgar met again. They discussed their adventures, work, and life and came across the topic on investments. [Please note that two individuals who discuss matters on investments are not bragging. They are just educated.^_^] Edgar told Howard that he grew tired of direct stock market and focused on his work. He also shared that he was not able to put more on his mutual fund even after getting tired (of the stock market trade) but instead forgot about them. Today he is happy that even if he forgot about his investments, they still keep growing each year but since he did not put more, his investments are growing on an average speed.

Howard also shared his side. He told Edgar he was able to make additional investments on his mutual fund and made a good amount of money. He was also diligent in his investment strategies and add up more investments like real state, bonds, t-bills and other mutual funds. Howard knows that it is not the amount of money he has that matters but more importantly the mind that manages how he thinks towards money.

Spell Success [HABITS]
In order for a person to become successful, he has to have good habits that help him achieve his dreams. 

If you want to be more spiritual, spend time with friends who can teach you the way to spirituality. If you want to become more physically fit, spend some time working-out. If you want to become a good public speaker, spend time with the toast masters. If you want to accumulate wealth, make it a habit to save and invest.

Education is what sets us apart
I am not saying that undergrad people cannot make it. Actually if you take a closer look at the multi-millionaires, most of them are drop outs. We have there Steve Jobs of Apple Inc., Mark Zuckerberg of Facebook, Henry Sy of SM and Lucio Tan of PAL to name a few.

I am talking about financial education, not the college degree.

Edgar stopped his mutual fund placements because he doesn't want to meet his broker every time he wants to place money. He could have used the internet instead. He could have set up a checking account and transfer the placements online. He could have solved his problem if only he searched for answers. The problem was he did not. When he got tired of his trades he could have gotten back to the laid-back slow-paced mutual fund investments.

In conclusion, we have different strategies of accumulating wealth. But be advised that the simplest and surest way to accumulating great wealth is to do it the slow-paced way. This has been told many years ago by Aesop himself when the slow turtle defeated the rabbit on the race. 

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