Investor, entrepreneur control
It’s the beginning of a New Year. Time to put actions to words. One successful businessman once said to me, “People don’t change their behavior unless it makes a difference for them to do so.”
If 2013 is a year you want to make a difference in your life, you have to change your behaviour to jump to another level. As a forum for passionate entrepreneurs my desire is that we a make a difference this year in all our ventures.
So, it’s a New Year and a “new you.” Here are some tips to improve your bottom line from investing and make that New Year’s resolution work. The one thing that you can do to tame your fear/greed or fight/flight response when it comes to investing is this: Control what you can.
By controlling what you can, you can stress less about the rest. Too often emotional responses like fear and greed take over and produce investment behaviours that torpedo your goals.
Well, here are three tips that you can use to combat these emotional investment behaviours and protect your investment performance from its greatest enemy: Yourself.
Asset Allocation: Diversification is still the best way to minimize loss and maximize your wealth potential. But this doesn’t necessarily mean simply “Buy-and-Hold.” You don’t have to be the captain going down with the ship in a storm. Know your risk tolerance and recognize that it changes over time. You can and should have a way to flexibly respond to market conditions. A practical approach is incorporating “tactical asset allocation” rules into your overall approach.
Investment Decision Process: The most successful investors can take a lesson from Kenny Rogers’s “The Gambler.” You got to know when to hold ‘em and know when to fold ‘em. This is best done not in response to some emotional event or a news story that freaks you out but before you buy. Remember what your mother told you when you went into a crowded room? Know where the exits are. The same holds true for investing. Don’t buy in unless you know what your triggers will be for exiting. This will help lock in a gain or minimize or avoid a loss. Individual investors rarely use a tool that has proven to be a life-saver for this: an Investment Policy Statement (IPS). With an IPS you can outline the process you or your advisor will use for choosing, keeping or selling investments.
There are few things that you can control in life. Expenses in investing is certainly one of them. Understand what you own or will buy and what the costs are. Expenses act like a sea anchor putting a drag on your investments. Your investments have to work harder to overcome the drag. By lowering your expenses you lower the drag. How do you do this? Look under the hood of your funds/unit trust or private placements or annuities. There are expenses to run each of those. And in the case of mutual funds what’s not reported is the cost of trading those holdings. So mutual funds with high “ turnover ratios” have higher costs (up to 0.50% more per year).
Here is my Challenge to you in 2013
Have a clear WRITTEN personal finance and business start-up/growth plan. Those who aim at something tend to attain it. Save, invest something periodically. Open the account THIS month end, even it’s for your kids only!
LEVERAGE from your strengths. Make money from, that which you can do easily or enjoy doing already. Improve on them through training, get a mentor to assist you and open doors for you, create your own opportunities in that space. By end of 2013 make sure that you are making some money through doing well what you can do already! CAPACITATE yourself for more opportunities. Read a new book. Learn, I have a commerce degree BUT am enjoying doing a number of online courses just to stay sharp (check out courses; . Approach someone who has been doing the business you do longer and ask them to tell you their story and mentor you. Here’s a bonus tip: Get a professional to help you.
Can you do this yourself? Certainly.
Does this mean you do all index funds? Sure you can. (I use them as a core and recommend them).
Do you avoid the help of a professional? I’m biased but I’ll say ‘nope.’ A professional will be able to better assess your risk profile and develop an investment selection process that you can use and stick with longer-term. And a professional will have a better idea of the kinds of things you need in your investment line-up to provide for a better risk-adjusted return.
The odds are that you’ll do better with the help of a professional guide along the way. It’s no different than trying to lose weight or get into shape. A professional will help you develop a plan and keep you on track.