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Simple Rules for Lifetime Investing

Earl "Butch" Graves Jr., President & CEO, Black Enterprise

Earl "Butch" Graves Jr., President & CEO, Black Enterprise

Many of us let a crisis go to waste. Yes, the Great Recession put a number of African Americans on the unemployment line and wreaked havoc with finances. Thousands of African American investors, however, missed out on buying opportunities during the recent economic downturn and current rebound.

Those who panicked pulled money out of the stock market, selling individual shares, redeeming mutual fund holdings, and, in some cases, withdrawing funds from retirement plans. Others have been so fearful of market volatility they’ve remained on the sidelines. If you fully disengaged from the financial markets, you’ve made a huge mistake. On Feb. 16, the S&P 500 closed at 1336.32, doubling its post-crisis bottom of 666.79 reached in March 2009, the fastest 100% rise of the index since 1936.

If I sound upset it’s because I am. In all my years as an investor, I’ve witnessed generations of African Americans miss out on wealth-accumulating opportunities or damage their portfolios by following the herd to buy quick-buck fad stocks without fundamentals, or sell in a market decline for fear of the unknown without regard to historical context. To create lasting wealth, you must engage in a sound, disciplined program of lifetime investing. I have developed four basic rules I urge you to follow:

Rule No. 1: Investing with a little is better than not making an investment at all. You can start your portfolio with as little as $100 through automatic withdrawal plans set up by mutual fund companies or online trading services. Better yet, the most disciplined approach to building assets is consistently deducting those investment dollars from your paycheck before they even reach the palm of your hand. Any person who does not take full advantage of employer-sponsored retirement plans such as 401(k)s and 403(b)s—regardless of whether your employer offers matching funds—either a) believes Lotto is an investment strategy or b) lacks a desire to save for the future. There’s no better vehicle for tax-deferred growth of your money.

Rule No. 2:
You  cannot time the market. I’ve never found an investor so prescient that he or she could foretell the performance of a given stock. Those who follow such oracles usually wind up becoming lambs led to financial slaughter. According to a University of Michigan study, the average annual return of stocks over a 30-year period for long-term investors is 11.83% versus 3.28% for market timers. The process requires doing your homework, consistently monitoring stock and mutual fund holdings, developing a plan, and sticking to it over the long haul.

Rule No. 3:
Invest in what you know. I have always been a fan of the investment philosophy of Peter Lynch, the retired Fidelity money manager who believed investors could spot opportunities by targeting and understanding familiar companies, industries, and products. I have three examples of such stocks in my own portfolio: GE, the diversified company whose products include appliances and consumer electronics; Apple, the tech company that has revolutionized the industry with products such as the iPad; and McDonald’s, the world’s largest restaurant company serving billions across the globe. Why do I invest in them? I look for companies with a ubiquitous presence in the marketplace, unparalleled branding, industry leadership, and strong management.

Rule No. 4: You can never start too early. I began investing at the age of 13. My portfolio was a single share of Exxon that I purchased with the help of my father. I tracked that stock’s performance religiously and would continue to buy shares with my earnings. That experience was invaluable in gaining an education of the financial markets as well as development of a disciplined approach to investing. I have passed on that tradition to my children, all of whom are required to place a portion of their earnings from summer jobs into savings and investment plans.
You can’t build “wealth for life” without sound investing practices, period. Even though our nation has weathered the Great Depression, several recessions, and financial panics over the years, the stock market has produced an average return of about 10% since 1926. Disciplined, patient investing will put us on the path to greater wealth and prosperity.

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