Part 4 of 4

Step #6 — Avoid large losses
In 2007, the Utah Division of Securities filed enforcement action on 63 cases. Together, they resulted in losses of more than $77 million for 727 investors.
Unfortunately, it has always been much easier to lose money than to make it. Money is slippery and hard to hold on to. It’s not uncommon for money to come in large lump sums — a retirement plan distribution, an inheritance or a life insurance settlement. People are expected to manage these large chunks of cash wisely, but there is no training available on how to manage or invest large sums of money. To make matters worse, most people simply don’t have the time, resources, expertise or desire to manage their assets, and there are plenty of incompetent advisors, relatives requesting loans and scam artists ready to take advantage. It’s no surprise then that most recipients of life insurance settlements lose their money within three years.
Some investment losses are unavoidable. They come with the territory. The key is to minimize large losses that can quickly reverse the benefits of compound interest.
For example, if you lose 25 percent of your account, you need to make 33 percent to get back to even, which is workable. If you lose 50 percent of your portfolio, you have to make 100 percent to get back to even, obviously a much more difficult task. A loss of 90 percent of your portfolio requires a gain of 900 percent to get back to even. Forget about it. A much better scenario is to follow a sound investment strategy that avoids those big, dramatic losses in the first place.

Step #7 — Be patient
Patience is a key attribute for successful investors, but it can only work if you adopt the kind of smart investment strategy we discussed in previous segments. Without that strategy, all the patience in the world is worthless. As soon as you put the right strategy in place, it’s all about patience, self-control, patience and, of course, more patience.
This is one of the most difficult steps for most investors, and it’s an issue we have to reinforce with our clients. Patience goes against human nature, and a lack of patience has ruined many sound investment plans.
We are constantly positioning our funds to take advantage of whatever the markets will give us. We never know in advance when we’re going to be rewarded. Sometimes, we spend months waiting. But we do know that following this process in the past has yielded tremendous rewards.
The portfolios we manage, Managed Income and Top Flight, have both tested our patience during periods of underperformance. By exercising patience and staying invested, Managed Income has generated a compound annual return of 8 percent since its inception in 2001, vs. 5.01 percent for the Lehman Aggregate Bond Index. Paragon’s Top Flight portfolio has generated a compound annual return of 15.75 percent since its inception in 1998, versus 4.37 percent for the S&P 500. (See our track record at www.paragonwealth.com for detail and disclosures regarding our performance).
Clients who exercised patience during periods when Top Flight’s returns went flat or negative still received those outstanding returns over time. Unfortunately, those who did not exercise patience missed out on those returns, even though the overall strategy was good. As you can see, patience is critical to long term investment success.
These seven rules apply whether you have a large or small amount of money. Building wealth is possible — if you follow the rules.
This is the final installment of our “Seven Steps to Building Wealth” series. If you would like a complete and more detailed complimentary copy of these articles, we invite you to download them from our Web site at www.paragonwealth.com.

CLICK HERE TO VIEW THE MAGAZINE ONLINE