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Investing Tips |
People invest - time, money, resources, reputations - in expectation of a gain of some kind. All investing cannot be undertaken without some risk of loss or, at the least, some penalty for not selecting an alternative that met goals better. Thus, you invest your time in an education, your emotions in a relationship, your money in a venture.
Most of us know the risks of investing in an education or a relationship - we've spent years in both. The rules are pretty familiar to us. Investing money with expectation of gain is a different matter. Most of us do not know how the world of finance and economics functions. Thus, we may set our expectations unrealistically and - worse - we are set ups for rumors, media articles and idle conversation among fellow workers and friends.
This is not to say that we must know everything before we set out on an investing adventure. Few people can see from alpha to omega. The rest of us must have a good sense of direction and then put our ideas to work.
Investing is about psychology. The investing process must begin with some motivation to have more tomorrow than you have today. The next step is to develop a goal and a strategy to meet that goal. Goals can be expressed in dollars, physical assets or experiences. A strategy gets you to the goal. For example, a strategy may be to set aside money each month from a paycheck, to marry rich, to become the world's best at what you do. So far, anyone can participate. Next, a set of tactics must be devised to execute the strategy. Here's where it gets sticky.
If you want to be the world's best poker player, you must learn the game and all of its nuances. A set of tactics may be to find a mentor, go to classes, practice on your friends (if you have any by that time) and emulate those successful in the business. An investing strategy may have a similar process, but few people have the time or the inclination to pursue the education required to gain the knowledge.
For the majority, a professional advisor is a bridge to a successful investment program. This is because there are many alternatives to choose from and choosing requires that one be informed. Here is where the going gets rough. In a world of media overkill, we are exposed to mountains of opinion, some which will prove to be right. Unless we know some basics, we will be fodder for the proponents of the extremes - whether they are get rich quick schemes or fear mongering.
The advisor is responsible for selecting the tactics, but the investor must supply the parameters, such as the goal and the tolerance and expectation of risk. The process of investing is carried out in two parts.
First, the investor invests. Then the advisor selects the particular areas and products to be invested in. Most investors, unless they are professionals, are not competent to select the tactics. Further, they lack objectivity and are prey to emotion. Emotion is often the ruin of a good investment plan. It's easy to see why.
In good times, people are eager to invest and most eager at the top. In bad times, people are shy, especially those who got hurt in the preceding boom. In both cases, the inertia of the previous period must be broken if most people are to be drawn into or out of investment. This is why few are investing at the bottom and many are investing at the top. The swings from top to bottom and back again are cyclical phenomena from an economics perspective, but they can be strong enough to create emotion in the form of fear or greed.
We assert that neither fear nor greed is a viable reason to invest. The best reason is expectation of gain. Thus, it is appropriate for the investor to keep funding the investment, so long as the advisor provides the guidance that keeps the plan roughly on track. In this sense, it is never appropriate for the investor to head for the exits. It is appropriate, however, for the investor to question the advisor if things aren't going well and to seek a new advisor if satisfactory progress is not being made.
The act of supplying funds to an advisor fuels a long-term plan. It does not necessarily mean that the advisor will put those funds in play right away. S/he may well hold them while waiting for a more propitious time. /Still, the investor should continue to work the plan and provide the funding. If not, the plan may not work as well as it might.
Again, bad times are the best times to place money in play. Remember, someone said, "buy low, and sell high"? Most people set themselves to do just the opposite. They invest money at highs, not lows. A properly trained and observant advisor can spot the inflection points that create opportunities far better than individuals can.
However, the advisor is bound to work the plan created by the client/investor by finding appropriate investments. The arrangement is solidified by solid feedback from the advisor to the client/investor, punctuated by bits of education about the forces that affect one's investment.
It's so simple, yet many people fail at the execution part. It's all about consistency and long term focus on the part of the investor and the advisor. Taking they eye off of the ball by succumbing to emotion or the whim of the moment usually cracks a good plan.
For the investor, then, stay invested. For the advisor, continually search for the areas of most productive investment consistent with the risk levels laid out by the client investor.