There is no such thing as perfect investing.
However, those investors who follow three important rules will outperform those who don't follow these simple, but important, guidelines
The first rule is to find someone who has actually become financially independent solely from safe investing. How do you know for sure?
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You need to ask the prospective financial adviser how much their annual dividend income is and their age. Someone 75 years old with only $15,000 of annual dividend income isn’t better than someone who has $85,000 of dividend income and is 45 years old.
Dividends are the first sign of safe investing.
Recently, Jim Cramer has embraced dividend stocks. I have been doing that for 15 years now.
The second rule in safe investing is to find companies that are either consumer-goods or big-pharma companies. From 1957 – 2003, 18 of the top 20 companies in the S&P 500 were either big-pharma or consumer-goods companies when reinvested dividends were taken into consideration.
Cyclicals, small caps, and large capital-intensive businesses may sound great and may do great, but they are generally not appropriate investments for those who want to practice safe investing.
The third is to choose companies that are easy to understand, given your expertise and background.
Doctors should not be buying oil stocks instead of pharma companies. If you are a novice investor, stocks of easy to understand companies (such as Wal-Mart, Pepsi, Coca-Cola and McDonald’s) are much easier to comprehend than financial firms or software companies and have performed better in this latest market malaise than most stocks.
Also, each investment should be for a minimum of three to five years.
Choose companies you feel comfortable with and give your selections a chance to work out.
Apple was $130 in September 2008 and dropped to $79 two months later. The patient investor today has been rewarded as Apple is now almost $395 a share.
No one can predict the future 100 percent of the time. Investing is 50 percent art (instinct) and 50 percent science (numbers).
But the key to improving your odds is to combine safety, growth and income with getting the right entry price, which is an inexact science.
About the Author: Bill Spetrino
Bill Spetrino is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of the Dividend Machine. Discover more by Clicking Here Now.
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