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Investing advice from the rich

By Judy Martel · Bankrate.com
Tuesday, August 23, 2011
Posted: 3 pm ET

Anyone watching the zigs and zags of the stock market these days has plenty of reasons to be nervous, especially in light of global economic worries. It's a wonder investors can sleep at night.

There's no magic formula that's going to suddenly make you wealthy and keep you that way through both fat and lean times. However, The Wall Street Journal recently published some tried-and-true tactics of the super-rich that are worth considering.

Yes, the wealthy have a plan that includes short-term as well as long-term goals and they live below their means. But beyond the obvious, there are three nuggets of advice that are especially relevant during these uncertain times:

  1. The rich don't focus on performance as much as risk. This may sound counterintuitive because most investors equate performance with an increase in the value of their portfolio. By diversifying their portfolios into various equities, cash, bonds, real estate and company stock, (many of the super-rich got that way by owning their own business), the risk in any one sector is mitigated and the opportunity for growth remains, even as other investments lag.
  2. The rich value cash flow. Those who didn't already know that "cash is king" certainly learned that lesson well after 2008. Having enough cash on the sidelines to withstand the economic downturn meant not dipping into a portfolio of equities that were losing value. Liquid investments also allow the rich to take advantage of strategic buying opportunities when certain sectors like real estate and some equities are bargain-priced.
  3. The rich don't throw in the towel. If the rich are selling equities now, it's for investment reasons, not because of fears about the market. A properly constructed portfolio should see you through your short-term and long-term goals, so there's no need for panic-selling and locking in investment losses.

The worst thing to do when the stock market is volatile is try to time it. Even the experts can't do that, so stick with a well-thought-out financial plan and take a few deep breaths.

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1 Comment
Mario
August 24, 2011 at 12:43 pm

And the rich pay less (percentage-wise) in taxes than the rest of us.

Warren Buffet said so.