Assuring Your Financial Safety
By Saghir A. Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live securely with dignity and fulfill their religious and moral obligations towards charitable activities)
The largest part of your wealth will most likely come from your career…not from your investments. Do not take risks with complicated or risky investment schemes in the hope of multiplying your capital quickly. You’re risking a lot of relatively little gain.
Do not assume you can replace your wealth. Just because you made it once does not mean you can do it again. Circumstances change; you may not be in the right place at the right time again. So, treat your wealth as if you can never replace it.
Do not use leverage. The overwhelming majority of people who go broke do so because they take on too much debt. The most effective way to make sure you don’t have too much debt is to have no debt. If you live life on a cash basis, virtually nothing can completely destroy your wealth.
No one can predict the future. No one. Investment markets encompass millions of participants, each acting in their own best interests. With so many forces contributing to the eventual direction of the market, events rarely unfold as expected. Avoid investments which rely on predictions for the future.
No one can time the market. You may hear about Wall Street wizards who lay claims to fantastic records, but you can rely on them losing their touch as soon as you entrust them with your money.
No trading system will work as well in the future as it did in the past. You may see a system with tremendous track records, but you can bet they won’t do as well in real life as they do in the lab.
Understand the difference between investing and speculating. When you invest, you accept the return the market is paying. When you speculate, you attempt to beat the market’s return. In attempting to outperform the market you take on additional risk. There is nothing wrong with speculating, but you must be prepared to lose money in the process, and you should not speculate with money you cannot afford to lose. Capital that is valuable should not be risked on a best bet that you hope to outperform other investors.
Never give anyone signature authority over your money. You have no way of knowing for sure what he may be prompted to do someday by pressures or problems.
Never invest in something you do not understand. Don’t get caught in the trap of investing in something your best friend or your investment advisor understands but you are not sure about. It is better to hold onto your cash than to find out someday that there were risks you did not understand at the outset.
Beware of tax avoidance schemes. Complicated tax strategies may include risk and liabilities of which you are unaware. Particularly with tax rates so low, the savings are minimal compared to the risks. Even a “friendlier” IRS is no fun to deal with.
Diversify your investments. Include in your portfolio a variety of investments that will perform differently in extreme situations. Be careful to avoid dependence on a single investment environment (i.e., rising stock market, moderate inflation, low interest rates, strong/weak currency, etc.). You can achieve a great deal of diversification with a fairly simple portfolio.
Speculate only with money you can afford to lose. This is a restatement of #7 above, but it is worth noting again. For most people, market returns will get them to their financial destination. However, if you must speculate, be very specific about how much money you will expose to possible loss. Take the step of setting this money aside in a separate account. Don’t’ speculate with money you cannot afford to lose.
Develop a budget for your own pleasure. Set aside a specific amount which you can spend each year without concern that you are jeopardizing your future.
When in doubt, take the safe, conservation course of action. If you pass up an opportunity to increase your wealth, there will always be another chance. If, however, you lose your life savings, there may not be another chance.
When it comes to handling money and investments, there are very few assurances. But following these guidelines will save you many headaches and put you on a most likely path to sustained wealth. You may not “hit the jackpot,” but neither will you experience the agony of losing everything you have.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr. Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.
This article was written in collaboration with Walt Hommerding, senior vice president investment of Wells Fargo .)
