Investing Tips From Grandma’s Personal Finance Author

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Personal finance author Jennifer Barrett learned how powerful investments can be by watching her grandmother.

“My maternal grandmother, born in 1912 in Perth Amboy, New Jersey, didn’t fit anyone’s stereotype of being rich,” she wrote in her book Think Like A Breadwinner. Her grandmother was a single woman who raised two children and worked for years as a secretary. She but she was able to build an investment portfolio worth $500,000 when she died.

The strategies he used were not get-rich-quick strategies or advanced tricks: they were simple principles constantly recommended by experts. Here are the five strategies Barrett’s grandmother used to build her own wealth and create her great portfolio.

1. You Inverted a Portion of Your Paycheck Every Time You Received One

Barrett’s grandmother was investing before the time of a 401(k); those plans weren’t widely adopted by employers until the early 1980s. At a time when pensions were the common form of retirement funds, her role as a secretary at a law firm didn’t allow for it.

He knew he had to invest on his own, so he started saving a portion of his paycheck on a consistent basis. “She realized that if she was going to save enough money to support her family and herself in old age, she would have to find a way to do it on her own,” writes Barrett.

So, she took matters into her own hands. She opened an investment account. “She continued to put part of each paycheck into her investment account,” Barrett writes.

In a sense, he began to create his own retirement account, saving a portion of his paycheck. While this is now easier with the availability of 401(k), saving a portion of a paycheck consistently over many years paid off for Barrett’s grandmother.

2. He invested in a wide range of companies

Before the advent of the ETF, or a fund that combines the stocks of many different companies, Barrett’s grandmother understood the need not to put all her eggs in one basket.

“Instead of betting on a few stocks, spreading your money across a diverse mix — big and small companies in different sectors — can help you reduce the risk of losing money on a bad bet,” Barrett writes. And that’s exactly what his grandmother did.

His grandmother invested in a variety of companies and tried to get as much exposure as possible in different corners of the market. While she couldn’t just invest in an ETF, she invested in the right companies that were different enough to keep her portfolio afloat.

3. He bought what he knew and understood

Barrett writes that her grandmother was an avid investor in products she knew, understood, and had a relationship with. “Nana invested in every company she wrote a check to or whose products she regularly bought,” she writes. “She didn’t invest in foreign exchange or pork belly futures or precious metals. She invested in companies she understood.”

It’s a strategy that not only worked for Barrett’s grandmother, but is also trusted by other investors. For her grandmother, this rule meant investing in “a wide range of publicly traded companies, from your electric and telephone companies to your favorite department store chains and Coca-Cola.”

And he helped his grandmother justify her investments. “One advantage was that if her utility rates went up, for example, she would pay more as a customer, but gain as an investor because the value of the stock might rise as a result,” Barrett writes.

4. Used a dollar cost averaging strategy to keep investing consistently

When your grandmother invested a portion of her paycheck, she didn’t save large amounts or try to wait to invest when the market seemed low. Instead, she consistently invested money every week.

This strategy is simple, but it is powerful. Those who follow a dollar cost averaging strategy continue to invest consistently, no matter what happens in the market. “By doing so, you’ll buy more shares when share prices go down and fewer when they go up, and you may lower the average price per share you pay over time,” Barrett writes.

This strategy generates more money and time in the market. “You can also invest sooner than if you had waited until you had more money to invest, so your money can start growing sooner,” she writes.

5. He stayed true to his strategy for several years.

Though she didn’t start investing until she was 46, Barrett says sticking with investments through the ups and downs was part of her grandmother’s strategy.

“Buying and holding is often a better strategy than trying to time the market, because timing the ups and downs of the market is nearly impossible,” Barrett writes.

For her grandmother, that meant holding on to her investments for as long as she could. It sounds simple, but managing the ups and downs isn’t always that easy. Leaving the money alone and staying the course with your investment program is generally the smartest choice, say, financial planners and investment experts. This strategy can help your money grow over time, regardless of when you start investing.

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