Big-Killing Burt lived in an estate home in an exclusive area of southern California. He had made a huge profit from a small company that he invested all his money in. Burt is the type of investor who is willing to take the kind of risks most investors shy away from.
Many investors have dreams of finding a sensational company that has not yet grown to its full potential. This dream remains exactly that for most investors, because most people are unwilling to place a substantial amount of their assets at risk. For people like Burt making a “big kill” is even better than winning the lottery, because it’s often the result of skill.
One problem Burts face is that the majority of research they depend on looks backward instead of forward. One efficient way to find a great opportunity is to do general and nonspecific research.
Another good technique is to build your purchases over time. If you buy shares at different prices, you’ll avoid the risk of trying to pick the “best” price at which to buy.
Tax-Advantaged Tom is another investor that needs to widen his method of investing. Tom is the type of investor who wouldn’t consider any investment that didn’t provide some form of tax advantage.
Few investors realize how big a difference taxes can make. Let’s say a portfolio made 15 percent in a year in which inflation is 5 percent and the tax rate is 28 percent. After taxes and inflation, the net return would only be 5.8 percent. At that rate, it would take more than 12 years for the assets in a portfolio to double.
The principal tax-advantaged investment available to investors is municipal bonds. All interest paid by these bonds are tax-free, but there is variation. If the bondholder resides in the state in which the bond was issued, the income is free of all local, state and federal taxes.
Another popular investment for Tax-Advantaged Toms is the tax-deferred annuity. Its principal and tax-deferred compounding are guaranteed. There are two types of annuities. The fixed annuity offers a set rate of interest and the variable annuity offers the opportunity to make money in various investments, but with various interest rates.
Although Tom and Burt are very different, they have something in common. They both focus on one aspect.
Part three will introduce Conservative Carl and Diversifying Dorothy, two personalities that could learn a lot from each other. After reading all six parts of this series, you should have a better understanding of what type of investor you are and how to maximize your investment results.
You can contact Eric at www.WealthCreator.com or 297-9800.
