Never forget these two axioms:
Money frees us, but its pursuit may enslave us.
It’s not how much you have at the end; it’s how much you could have made.
RANTS, Part I
One last fun post before we get back into more serious financial literacy/investing analysis…
We all have topics that get our blood angered up (as my brother describes it) whether it be work, pop culture, or politics.
Investing isn’t any different…at least not for me.
Fair warning: This will be a recurring theme.
A few things that are often bandied about as good investments that all should avail themselves of that rankle me to the very core of my existence.
#1 Bond Funds
As mentioned before, I hate them with a passion.
As risk of loss rises, so should the yield. Increased risk=increased reward. Otherwise, investing makes no sense whatsoever.
Bond funds are a combination of mutual funds and bonds. These are securities that own a basket of bonds and may buy and sell them as their yields fluctuate and the bonds themselves mature. Thus, the return on investment is largely determined by the bond yields held by the fund which isn’t very grand. Subtract the fee for the bond fund in question and then you have an even worse return—-possibly below that of inflation. Bummer!
Even worse is that bonds themselves should be quite secure in exchange of lower returns whereas bond funds can lose money as fast or even faster than mutual funds. This is especially true given that even a mild fluctuation in interest rates could set fire (as in torch, not “This is straight fire!” as the kids say nowadays or “This guy is on fire!” after hitting multiple successive three pointers in basketball) to your bond fund. Depending on the composition of your bond fund(s), you may have a staggeringly bad investment on your hands which you cannot get out of or even wait out until your losses are irreparable.
In summary, rather than own bond funds, do the following instead:
Buy actual funds (mutual funds, ETFs)
Buy actual bonds.
And never should the twain meet…
#2 African Funds
I have absolutely nothing against the continent of Africa and have traveled there in the past and plan on doing so again in the near future. (Mrs. PWT is hoping as early as next year!) However, as an investment, this is not the region of the world to invest in. In theory, the continent should be an investor’s paradise—natural resources such as oil, gold, diamonds, etc., a cheap labor force, and a globalized world seeking both labor markets and markets to sell products. However, reality—corruption, wars, the aftermath of colonialism, civil strife, sheer incompetence, etc.—has interceded to disrupt that potential time and again.
For decades now, Africa has been touted as a frontier market that you need to invest in to get on the ground floor of the biggest investment of the next century. And, for decades, you would have lost money on betting on the “next frontier.”
A lot of money…
If you don’t know Africa well, haven’t traveled there multiple times, and keep abreast of all the twists and turns in the most complex continent on the planet (My opinion—may not even be worth two cents) as an election or a civil war or a rebellion may tip the promise of great returns into double digit losses—-or an insolvent fund.
This is neither for the faint of the heart or the new investor that hasn’t yet built a core investment portfolio before branching out into more esoteric or riskier investments where your knowledge is stretched to its maximum or even beyond.
In summary, rather than invest in an African only fund, do the following instead:
Invest into an international fund where the entire globe is now part of your investment portfolio. It spreads out the risk across many countries including possibly African countries. And along with this, you’ll have a fund manager with a team of analysts that are not only experts in those foreign countries, but are paid to do nothing but pay attention to the events, gyrations, etc of each and every company, nation, and even region day by day.
Good luck keeping up that kind of investigation and still going to work and maintaining a family life as well.
Well…
There’s plenty more where that come from as you will read (hopefully) in upcoming posts months and years (?) from now.
I’d love to hear from any and all of you about your thoughts, so we can all learn from one another.
Please spread the word about this blog to your friends (real and virtual), family, and colleagues. Talk to you soon.
Until next time…