Five years down the track after the greatest credit crisis in living memory, and from which the world has yet to fully recover, thank God for the fabulously valuable lessons we've learned - or yet to realise they are fabulously great.
(I'm addressing investors here. That includes (emphatically) every person, working or retired, with money in their super or pension account.)
What's the biggest, most relevant lesson?
SHARE PRICE CHANGES ARE NOT AN INVESTMENT RETURN.
Yes, it's quite true that most people - including superfund managers - regard changes in share price as investment return, but in our view this is both a cop out, and a deception.
The only true investment return is the INCOME generated by that investment. Income is real money (ie, not 'on paper') . Share-price changes are purely 'on paper'. Unless, that is, you sell your shares. But why would you sell your source of investment income?
When you hear (or read on a report) that 'your investment has increased in value', it may look good, and it may feel good, but it really is only 'on paper'. It is valueless unless you cash it in. And unless you cash it in, it is there to earn income.
Do not make the fundamental error of thinking that increased share-prices means increased income. (Or decreased share prices means reduced income, for that matter). No, no, no!
Share-income (dividends) are paid 'per share', not per dollar value. So increases or decreases in share-prices do not affect the amount of your dividend income. That's the great beauty of holding shares for investment income.
Unless you are a gambler (what? - with your life savings??), that is.
The ONLY, REAL, investment return - in ANY investment (unless you're a gambler) is the INCOME earned by your investment.
To be continued...