Streetwise

Lauren Rudd

Sunday, October 27, 2013

Invest Like Ulysses S. Grant

As long as there are students of military science, the qualities of Civil War general Ulysses S. Grant will continue to be the subject of continued debate. Regardless of which side you take in judging Grant's overall prowess as a general, Grant possessed three characteristics which every investor should take to heart.

Grant's military success was attributable to his ability to plan a campaign by starting with the end objective. This beginning at the end was combined with an insatiable need to be constantly moving toward his objective, along with a will of resolute determination. He was thereby able to focus on the big picture, create an action plan and then work his plan under the most difficult of circumstances.

While most of us are fortunate not to be fighting a war with armaments, we are locked into the combat of achieving financial security. For those under the age of 55 the idea of securing a sound financial retirement often lies in that foggy mist of the future. The result is often procrastination and excuses that forestall attacking the problem until drastic action is required.

This procrastination is fostered by an acute association of retirement with Social Security. We want to believe that Social Security is the safety net on which we can always rely. Unfortunately, Social Security provides little in the way of retirement security, unless of course you plan on a late-in-life career at the Golden Arches.

If you are near or in retirement, your enjoyment of your golden years will depend heavily on whether or not you are able to maintain at a minimum your pre-retirement standard of living. Wait; is it reasonable to expect that you can maintain such a standard without the earnings of yesteryear? Unequivocally, the answer is yes. Investing prudently will, over time, enable you to accomplish that goal.

Whenever you receive funds, regardless of their source, you have two choices: you can consume or you can invest. Investing is the way in which you trade today's purchasing power for greater future consumption. And your investment portfolio is the store house for this rising purchasing power. By applying Grant's military philosophy to your investment program, you can dramatically increase your odds of achieving financial freedom.

First, begin with an end objective. Establish a road map of where you are today and where you want to be at some point in the future. For some the long-term goal might be retirement. For others it might be to ensure that you have adequate funds for the last stages of life, while still being able to leave behind assets for family or favorite charity.

Shorter term goals might include higher education or a new home. If you are past your earning years, your goal might be to indulge in some of those luxuries you put off during your younger days. To finance your attack you will need an army of liquid assets. Here is where your ability to successfully invest and reinvest those assets becomes critical.

Keep in mind that your goal must include a return that is higher than a combination of what a ten-year Treasury would pay (the so-called risk free rate), plus inflation, and finally a 3 to 5 percent risk premium. Given the unusually low levels of interest rates and inflation, I would add an additional 3 to 5 percent. You want your minimum total desired return to be between 12 and 15 percent.

Second, you need to be continually moving towards your goal. You must never let up. While reinvestment of dividends and capital gains will always do its part, investing additional funds regularly is crucial in most cases.