Backyard BBQ Investment Advice

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I was at a party recently and was approached by a friend who was vaguely familiar with the work that I do. When he asked and I started to explain I noticed a dulling glaze fall over his eyes. So, instead of me babbling on about helping business and people get to where they want to be professionally and financially I spun the conversation around. Turns out my friend was really looking for a little investment advice. Now let me start by saying that any of the opinions expressed are my own and that what I am merely doing is sharing some of the insight out of the conversation and offering it to you because I think lots of people are in this situation.

 So without further ado the top five points, in no particular order of importance, from that conversation:

 5.) Keeping it all in perspective – Whether you are in the market at all, are thinking about it, or have a portfolio full of digital fictional dollars ( I have a few) your money should reflect your plan and risk tolerance. Now before you get all dull-glazed on me just hear me out. If you’re new to investing and are unfamiliar with the volatility in the financial markets of 2010 does it make sense that your pick some overly aggressive and overly hyped instrument. How would you feel, honestly, if your portfolio took a 30% negative swing in one day? If it makes you as sick as it makes me just thinking about it then you probably should avoid those “hot tips” and “hot handers”.

 4.) Stick with what you know – There are worlds of choices out there and each one promising returns and capital appreciation. If you don’t have the time or the inclination to do the research then just stay out of them. Better still find someone who is savvy with this stuff and get them to help you out. Buying something and just hoping that it does well is NOT a viable investment strategy. Every day you consume goods and services from major brands and companies all over the world, pick a few of your favorites and start there.

 3.) Have a plan – Try as much as possible to avoid being a hero day trader. Have some kind of system in place to evaluate your investment decisions. It doesn’t matter if it’s a check list, a phone call you make to a trusted friend or running it by your financial professional. If you map out your choices and give them a little room to breathe you are more likely to avoid making mistakes. The trick is to beat out all the other impulse investors and actually stick to the plan or guidelines you set in place. Remember its about your money’s real return not the return on the investment that you choose - you don't want to loose any gains you've made to meddling transaction costs either! 

 2.) Have a floor – There are great companies out there that pay dividends regularly. Pick a few and get into them for the long run. The reason behind this is that regardless of what the rest of your portfolio does you know that every quarter some kind of income is coming in. If you are reinvesting those dividends than every quarter that income is getting bigger and bigger as you are acquiring more of those shares. It doesn’t hurt that as markets start to climb back up that those equities will benefit from some capital appreciation as well.

1.) Don't let it be the only thing you talk about - What's that old adage...a watched pot never boils...something like that. You will make your way to the bottom of your friends list if your new investing prowess is all you ever talk about. Everyone wants to do well financially and people are generally happy for those close to them that are able to navigate the turbulent financial waters. Now I'm not saying just set it and forget it but remember that everything in life is a balancing act, even your money. So read everything you can get your hands on, watch CNBC for their experts and pundits (don't just blindly follow though) and be an active part of your portfolio - just make sure you are doing other things too. If you micro manage though, the odds of you deviating from your bullet proof financial strategy and the discipline you've committed to increase. There will always be a ratio to be tweaked or a firms quarterly report that needs reading but what the ultimate goal should be is to beat out Dalbar's latest investor real return on investment of 3%, especially when indexed S&P 500 funds are yielding between 8-12% annually.

Those were the bigger points of the conversation. I tried to stress the last one because we were at a BBQ and sometimes, contrary to popular belief, I do like to take my work hat off. It was fun (or funny rather) though because by the end of it I had a group of guys around me all listening pretty intently, and a group of their girlfriends staring because I was apparently more interesting at that moment.

 Shameless Plug: Don't forget that this is the kind of coaching that I do so if your interested or have questions on how to get started for yourself feel free to shoot me an email. I like to think that I am a pretty nurturing and professional hand-holder for those just starting out. Oh, the Master's Degree and years of experience in Financial Planning probably help too.



Comments

[Jackie]

Risk tolerance is an interesting thing. I suspect a lot of people are much less tolerant than they think they are, which is why so many people sold when things dropped 40%.

[Nunzio Bruno]

Right on Jackie! I'm with you and absolutely agree with the impulse over emotional reactions. In some cases when dips like that happen it might be better to even get in a little deeper to take advantage of dollar cost averaging.