What Ben Graham can teach you about saving: Top lessons from the master investor

| November 12, 2013

What Ben Graham can teach you about saving Top lessons from the master investorIn the Intelligent Investor, Benjamin Graham laid down his philosophy on how to approach the tricky and treacherous world of stock markets and emerge stronger and richer. He introduced the concept of value investing and focusing on the intrinsic value of a company rather than its fluctuating stock price. His voice was a sound call of sanity in what is often a very irrational place where people place bets they cannot cover and end up losing everything they have.

Now most of us are not risk-happy investors or traders. We have bills to pay, families to raise, and no inheritance to fall back on should we bungle in our financial decisions. That alone clips our wings somewhat. We prefer to play slightly safe and hope to grow old with enough in our retirement funds not to have to bother about money again. We also prefer saving to investing or speculating.

So what can we do about that and how can the most celebrated investor of all help us?

While Graham was specifically talking of stock market investing, the basic soundness of his principles can be implemented in other aspects of handling finance as well. After all, the purpose remains the same – to gain financial security.

In this post we present a few suggestions to aid your financial security, inspired by some of the most popular ideas proposed by Graham 64 years ago.

Here’s to smart saving and investing!

It’s all about the long term

Benjamin Graham was a firm believer in investing for the long term. That is the only strategy that will bring you accumulative returns over a long period of time. So make that your saving mantra too. Simply put your money in a savings account and forget about it.

We recommend having at least two savings accounts. Set aside around 30%-40% of your monthly salary and put it in one account and don’t touch it unless you absolutely need it. Apart from that, put aside 5% or 10% of your monthly income in another savings account, or a similar long-term saving instrument, that would give you good returns a few years from now. The flipside being you won’t be able to access that money in the interim.

You will effectively have to forget you even own that money and when you access it after 15 or 20 years you will have a considerable amount at your disposal. It may sound like a long time away but 15 years will be gone before you realize it. And if you don’t put that little bit of money aside now each and every month, it may well end up getting wasted on the long list of things we buy every now and then that don’t really do much for us but which we purchase anyway.

If you have the discipline for it, investing a little bit of money in various short and long term savings instruments is the best way to secure your future.

Don’t pay top dollar for that which can be found for less

Raking for bargains is a part of Graham’s value investing strategy. How much money you end up with in a few years’ time will depend not just on how much you set aside in savings but also on how you spend the money that you spend on a monthly (or even weekly) basis.

Make it a habit to look for best bargains and returns. If you can buy something for cheap, don’t pay more for it. Graham was referring to stocks with this commandment but it can equally be applicable to anything else in life. If you lean toward high spending, this bargain hunting will stand you in good stead. If you are one of those rare species that only spends when they need to, go for quality over quantity.

Investing in a high-quality winter coat that will serve you well year after year – a good idea.

Upgrading to the new iPhone just for the heck of it — a BAD idea (no matter how much they rave about the new iOS).

Keep your risks well below your ability to endure them

This is the biggest ingredient of smart anything – not to push your luck too much. Agreed you could stomach a loss of a few hundred dollars if your stock investments were to go bust. But just because you theoretically can does not mean you should. Graham recommends staying away from risky-looking business, or rather stocks. Before picking up anything that requires you to spend money on it, do an honest risk assessment if you can take the hit if things don’t turn out according to the plan. Then cut your risk appetite by half and assess if you still would be able to take a hypothetical loss. If the answer is no, or “I don’t know”, move on to sounder investments.

Do your research

Approach your finances with the sincerity and thoroughness of a professional money manager.

Each time you want to improve in an area in life, the best thing to do is to assume the highest responsibility for it and approach it as would a professional (presumably drawing from their vast knowledge and experience).

You probably don’t have that knowledge yet, which is why you should start with your own research with the aim to maximize your finances without taking too much of a risk. Read up, consult the right people, learn about finances, and draw a sound plan for your future. Deal in concrete numbers and projections. The less wishy washy you are about this, the better it will be for you!

Tracy is a Community Manager at The Hartford, which offers sustainable multifaceted financial services, including contractors insurance. She’s @TracyVides on Twitter.

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