• ABOUT – DICK YOUNG
  • YWMF – ARCHIVES

Young's World Money Forecast

Since 1978 With a 32 Year Vacation

  • DICK YOUNG
    • FROM RICHARD C. YOUNG
    • THE FINAL INTELLIGENCE REPORT
  • INVESTING STRATEGIES
    • RETIREMENT COMPOUNDERS®
    • DYNAMIC MAXIMIZERS®
    • GOLD & SILVER
  • DIVIDENDS & COMPOUNDING
    • MIRACLE OF COMPOUNDING
    • DIVIDENDS
  • GRAHAM & RUSSELL
    • BEN GRAHAM
    • RICHARD RUSSELL
  • THE DOW AND THE LEADERS
    • DOW vs. S&P 500
    • DOW vs. DOW DIVIDEND PER SHARE
  • WELLINGTON MANAGEMENT COMPANY
  • YOUR SURVIVAL GUY
  • BANK CREDIT & MONEY
  • THE PRUDENT MAN

Three Dangerous Traps Investors Face

June 26, 2019 By Richard Young

There’s a lot you can’t control when you’re investing. Putting your money in securities necessitates some risk taking. You probably aren’t managing the companies you own, or the governments you lend to yourself, so you have to trust managers and politicians to do that. And you’ll never direct consumers and taxpayers, so revenue streams are completely out of your control. There are though, things you can do to put yourself on sounder footing. In July of 2004 I wrote:

Compound Interest and You

Here’s a compound interest story that should help you and your spouse. Let’s assume a hypothetical $10,000 investment with a 7% annual return for 20 years. Investor A draws the 7% ($700) each year for living expenses. At the end of 20 years, the original $10,000 in capital remains in place, and $14,000 in simple interest has been drawn for living expenses. The end value in capital and interest drawn is $24,000. Now let’s assume hypothetical Investor B invests the same $10,000 at the same 7%, but draws nothing and simply let’s the money compound for 20 years. Well, $10,000 compounded at 7% for 20 years has an end value of $38,696. You will see that $14,696 ($28,696 – $14,000) represents interest on interest. Over half of the long-term total return for Investor B reflects interest on interest. Unfortunately, compound interest is not a concept that is well understood by most investors.

To their everlasting sorrow, most investors not only lack a basic knowledge of compound interest, but also lack patience and dividend/interest religion. Many are greedy, trade way too often, and are in debt. For the record, I have no debt. I buy for cash. I have never employed margin and tend to own the investments I make for a long, long time.

So the three traps I explained that can harm your investing success are

  • Being greedy
  • Trading too often
  • Being in debt

Greed will inevitably ruin your patience. Trading too often will generate fees you can’t afford. And using debt to buy investments, while not a mortal sin, can turn your gains into losses so fast it’ll snap your neck.

Focus your investing on compounding, and work to avoid the three traps.

image_printPrint Page

Related

Filed Under: Investing Strategies

RSS New From Young Research & Publishing

  • Richard Young Reports: 50+ Years with Fidelity and Wellington
  • Deep Survival, Who Lives, Who Dies, and Why
  • Herd Immunity by April?
  • Corporate Bond Yields: What You Can Earn Today
  • Your Retirement Life: Meet Larry the Car Wash Guy
  • Is Oil Headed Back to $100 per Barrel?
  • You’re Worried About Money, Not Just Losing It
  • Texas Needs More Coal, and More Nuclear
  • America’s Growth Corridors as Written in 2013 by Joel Kotkin
  • Number of Bubble Stocks Rivals Dotcom Period

RSS New From Your Survival Guy

  • Richard Young Reports: 50+ Years with Fidelity and Wellington
  • Deep Survival, Who Lives, Who Dies, and Why
  • Your Retirement Life: Meet Larry the Car Wash Guy
  • You’re Worried About Money, Not Just Losing It
  • America’s Growth Corridors as Written in 2013 by Joel Kotkin
  • You’re Witnessing Reckless Spending and the Destruction Of…
  • Fidelity #1: GameStop and NEVER Selling You Out
  • Do You Know Fidelity’s Best Kept Secret Weapon?
  • What You’re Telling Me on Any Given Day
  • A Tax Saving, Money Making, Idea for Your Grandchildren

Search Our Site

Richard C. Young & Co., Ltd.

–Client Letter Sign Up–

Sign up to receive email alerts when our latest client letter is posted on our website.

Copyright © 2021 · About Dick Young · Terms & Conditions