6 Rules to Remember in Times of Chaos
January 11, 2016
The big picture this past week was terrible. Looking around the world we saw a world begging for shelter from rough markets without anywhere to hide. China’s market is dropping with no real remedy in sight. The world looks at China and wonders if anybody really knows what is going on. And then on top of China, North Korea claims to have tested a hydrogen bomb, with the 33-year old “supreme leader” being quoted as saying he liked the sound of the bomb exploding. Meanwhile the ongoing search for a bottom in oil prices continues to hang over the market.
So it’s no wonder that after the first trading week of 2016, the central trading theme appears to be volatility; one of the worst things for investors as it creates uncertainty. If the big picture in the markets for this year will be above average uncertainty then perhaps this is a time to remember and focus on the importance of the small picture, our own finances.
Perhaps you saw this week what wound up being a timely article in the paper about investing and family financial advice. The writer asked several nationally known authors of investment advice books for their most important advice. Instead of their normal 300 page books, the authors had to fit their words of wisdom on a four by six-inch index card. In times such as this past week maybe a small index card can clarify and focus us on the small picture.
The points from each advisor were different and ranged from the very obvious, such as the long-term nature of investing, to issues like quality time with your family and friends. I was not asked for my views but I have shared some of my personal rules with you in the past. This seems like a good time to shift from a global worries and remind ourselves of what really matters to each of us on a personal level. So here is my personal index card of investment and financial guidelines.
Your investment portfolio must grow. It grows by consistently saving and consistently investing in good times and bad.
You must know where your money is going. This does not mean being handcuffed by a budget but it does mean tracking spending in detail. Too many investors don’t know how much they spend. Your investments at retirement must support your lifestyle (which determines your spending).
Understand risk and develop your own tolerance for risk. If you don’t understand something don’t invest in it. You must remember you cannot make money grow without taking risk so you better understand it.
Income or cash flow is important in an investment portfolio especially as you get closer to retirement.
Understand the risks inherent in the use of leverage or borrowing money. Borrowing money, both personally and by companies, can work well but can also massively increase risk. Our greatest financial meltdowns often occur because of the over use of leverage.
Be disciplined and patient. Plan and avoid impulses in all aspects of your life be it financial, career, or family issues.
Carl Gambrell
