Since being organized with your money is core to the Ruly philosophy, each year I devote one monthly theme to money and finance topics.  While I can’t advise you how to earn a better return or pick good investments, I can share with you a few general tips I have learned so far in my own quest to become a better investor.  This month we will look at the mindset of money—some of the things we all have to learn in order to become better investors and manage our own money.

To kick off the month, I will share one of the investing rules that has served me well:
 

Never invest in anything you don’t understand.

 
or, if you prefer to put things in positive terms:
 

Invest in what you know.

 
Some people might use this maxim as an excuse not to invest in anything because financial products get so complicated so quickly.  You don’t have to perfectly understand an investment – like how the entire stock market works—but you should at least have a basic idea of how the investment functions and how it makes sense that it could earn money for you.  For example, when it comes to stocks, it makes sense that if you invest money in a company and that company does well selling its products or services, that you would then share in the profits of that company, either through a dividend or selling your stock investment at a profit.

Even as I learn more about money, I still find that I need a reminder of this rule from time to time.  Recently, a financial advisor contacted us about purchasing an annuity with a “guaranteed rate of return” around 5%.  The pitch sounded pretty good but we couldn’t understand how anyone would be able to sell a product with a “guaranteed” return when the stock market has been anything but certain lately.  It sounded a bit Bernie Madoff-like.  So, although we didn’t understand why we were saying no and knew that there was a chance we might be missing out on a good thing, we let the opportunity go.

In the end, this turned out to be a wise decision for us.  Coincidentally, Suze Orman weighed in on this type of investment and this is what she had to say:

Another example of this came when I heard about a type of “CD” that invested in foreign currencies.  The pitch made it sound like you put your money in the equivalent of a bank account and that your money was then magically converted to foreign currencies and would just sit there and earn interest and be as safe as money in the bank, “FDIC insured.”  Honestly, it sounded really good.  In order to have this opportunity, you had to invest a large sum of money.  We were really thinking hard about it.  The more I thought about it and learned about it and read the fine print, however, I learned that it was really wrong to think about this like a CD.  Essentially, it was more like a stock investment in foreign currencies.  The value could go up or the value could go down.  If the entire bank failed, you would probably be able to get out the current value of your investment through FDIC insurance (but if the whole bank failed, chances are your investment wouldn’t be worth much at that point) but it was by no means a guarantee of the initial value of your investment like a “real” CD is.  It wasn’t necessarily a bad investment if you wanted exposure to foreign currencies but it wasn’t the type of investment we wanted at that time.

In both situations, you can see that the temptation is to think, “I don’t know very much about investing so I probably should rely on these experts to tell me what to do.”  or “Maybe no one else knows about this because you have to invest a lot of money and only a few, rare people have this much to invest.”  Just pause for a moment and think, “I may not be the smartest investor in the world but I am capable of understanding why this investment makes sense.” and  “If it is really that good of an investment, why isn’t everyone else doing this too?”  When you have that instinct, start doing more research and make sure you understand both how it benefits you and how it makes money for the company who is offering the investment.  If you can do this, you will probably save yourself a lot of heartache (and money) from making moves with your money that probably aren’t smart.

The only person looking out for your interest when it comes to your money is you.  Understand that everyone in business wants to make money and they have no interest in giving or sharing profits with you.  If the investment is “easy” like putting money in a bank account, the return is generally low.  Perhaps in some cases that I am not aware of there are really simple ways to legitimately and legally make a ton of money but for the most part, investing money requires a lot of hard work, knowledge and effort.

In the month of March, I will share some of these other insights of the investing mind.  We all know that the trend is toward more and more personal responsibility for big investment decisions (like retirement planning and college savings).  My generation will have to know a lot more about investing than our parents and grandparents did and our children will likely have to know more than we do.

Being an organized investor is part having the money to invest but more importantly it is knowing how to make good decisions with the money you have right now and the money you may make in the future.  I encourage you to share any of your own investing lessons this month so that we all can benefit and here’s to good fortunes for us all!