The Secret Philosophy of Successful Investing

How New Investors Should Approach Their Portfolios

Investing Philosophy
••• Almost no one talks to new investors about developing a good investing philosophy. The truth is, successful investing isn't about amassing the most money possible. It's about finding a balance between your current needs and future wants. Maciej Frolow, Getty Images

Whether you are just now realizing that you need to invest for your future mid-career or you are starting out as a recent college graduate, you may get the impression from financial sites, newspapers, and television shows that your highest purpose in life should be to amass as much money as possible. That is foolishness. Here is the real story.

Your Goal Is Not to Have as Much Money as Possible

When you are investing, your goal is not to pile up more treasure than your neighbor.

Instead, it is to find the right balance between satisfying your needs, wants, and desires today and delaying them for a bigger payoff tomorrow.

Investing cannot be an end unto itself. The ultimate purpose of any investment is to generate money that can be converted into things that you value such as services (getting your lawn mowed, hiring a trainer, having a personal assistant, or coming home to a spotless house every night), products (a big screen television, new car, tailored suits, fine watch, or diamond necklace), or charitable contributions (building a cancer ward at your local hospital, supporting scholarships for a university, or providing resources for your favorite symphony).

That means that you and your family must make a decision about what trade-offs you are willing to make for your investments. Saving every penny at the expense of life experiences is just as foolish as providing nothing for your future.

And here is the key: Only you can make the decision about what the "right" balance is. If you have simple tastes, it may only take $70,000 a year in passive income to make you happy. If you prefer $3,000 crystal decanters accented with sculptured sterling silver handle, however, you may need a lot more.

Investing Is Personal

I have never taken a salary from one of the businesses I own. Instead, I live off my personal investments, royalties from writing, etc. I could have a much higher standard of living were I to suddenly vote myself a large paycheck but because of my relatively young age and the intellectual and emotional pleasure I get from "owning stuff" and watching it grow, I choose to pour all of the retained earnings back into expansion or other investments.

For someone else, that would be a foolish decision. I am not right and they are not wrong. Money is personal. It is a tool to achieve a specific goal. In my case, the goal is to build an empire. In your case, it may be to have fresh flowers delivered every day or wear tailored suits. As long as you aren't selling short your long-term goals for instant gratification, you need to reprogram your mind and start seeing money as nothing more than a tool to help you achieve specific things you desire.

The point is, once you become financially independent (meaning you don't rely on a single job or source of income to support your family, you have plenty of savings in the bank to help protect you from major catastrophes, and you don't have a lot of debt) you cannot allow other people to tell you what is a "wise" use of your money.

A close friend of mine, who was older and retired, once hid a set of pots and pans from her family because they cost several thousand dollars, even though they made her incredibly happy, she had a substantial personal net worth, and pension income that covered her daily spending needs. Who the hell cares if someone else thinks the cookware is excessive? It's your money! You earned it!