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  • A good investor knows her limits

    Thanks to Blogging Stocks, I came across a Kiplinger article called “Put Cash in Your Pocket,” which highlighted some ways to get 7% to 10% yields “without taking extraordinarily high risks.” They suggested:

    • Closed-end funds
    • Business development companies
    • Shipping companies
    • Royalty trusts
    • “Emerged” bond funds
    • Overlooked REITS
    • Preferred stocks

    I wish I felt comfortable enough to independently evaluate their suggestions and make an educated decision about whether these would be good investments for us. They sound good, but I simply don’t know enough to assess the risk or tax consequences.

    Am I missing out on solid returns? Probably.

    Am I being over-cautious? I don’t think so. If I were to invest in any of these options without fully understanding what I’m getting into, I would cause myself a tremendous amount of stress wondering what the consequences of my actions were going to be. Would I lose all of my money? Am I going to owe taxes and if so, how much? Are all of my gains going to be eaten up by fees? When should I pull my money out? And so on and so forth.

    As an investor, it’s very important to know your limits. Someone with a higher risk-tolerance than mine might be comfortable investing in one or more of the suggestions without fully understanding them, and that’s certainly fine if they have the money to invest. In my case, I know my limits are limiting my investment options, but at least I know what my limits are. And they aren’t forever. Learning about different types of stocks and other investments is high on my list of things to do when the kids are a little older; I simply don’t have enough brain cells to study right now.

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