There are many reasons to be investing these days, and too much
opportunity to not have your money working for you. However,
I believe the majority of people dread having to deal with
investment matters, and tend to jump into purchases and then hold
their breath hoping for the best. After a long day at work and
taking care of the family, it's hard to get excited about reading
up on your 401(k) options, Morningstar ratings and fund
performances.
If this sounds like you, there are basically 3 choices.
1. You can have your investments professionally managed,
2. you can continue as you have in the past & keep your fingers
crossed,
3. or you can find a methodology that objectifies the investing
process (that's buying and selling investments) and helps you
maximize your long-term results.
To determine if you need help managing your investments(and this
doesn't necessarily mean having to pay for advice) you might want
to ask yourself these questions:
* Do I really have the time and interest to follow the market
closely on a daily basis?
* Have I done well in the past managing my own investments?
* Do I really want to add another layer of work and
responsibility onto an already busy schedule?
If you're like most people, you would answer yes to some and no
to others, so how do you decide? If you think you could have or
should have done better with your investments, then you need some
help. Don't feel bad. Having counseled hundreds of people over
the past 15 years I can honestly say that everybody needs some
help, whether they are aware of it or not.
Why? This could come as a surprise, but, in fact, your financial
life is a lot shorter than your physical life?
Most people who end up investing don't really start working and
making money until they are about 25 years old. Considering the
average retirement age of 65, this gives you only 40 years to
save and invest wisely.
If you make a poor investment decision, such as trying to stay
fully invested during a bear market, you could lose big both in
terms of diminished dollars and wasted time.
To drive home this important point, let me give you an actual
example involving my own portfolio. For ease of illustration I
have adjusted the beginning portfolio balance to $10,000.
During the period from 1/25/91 to 10/13/00 my $10,000 investment
grew to $37,840, which is a 14.67% compounded annual return.
On 10/13/00, based on a methodology I was following, I liquidated
all of my domestic mutual fund positions and moved 100% to the
safety of my money market account. Thanks to this move, my
portfolio retained 100% of its value on that date.
As we now know with hindsight, most people held on to their
investment positions and have so far lost on average 50% to 60%
of the value of their portfolios. For this example let us use
50%.
If I had held onto my position, my portfolio would be down to
$18,920. Last time I hit that level on the way up was in 1995.
In other words, not only would I have lost 50% of my portfolio I
would have lost even more by having used up 20% (8 years) of my
total financial life.
How can you avoid mistakes like that in the future? Spend a
little of your valuable research time looking for investment
methodologies that allow you to side-step bear markets and let
you move back in during bull markets. In other words, invest your
time looking at methodologies instead of investments themselves.
This will lay the foundation for more effective use of your money
and time.
If you find a methodology that you like, and it matches your
investment philosophy, stick with it for the long term. It should
have the aspect of telling you when to get out of, as well as
when to get into, an investment.
I suggest you follow these broad guidelines:
* Don't be afraid to take a small loss to avoid bigger disasters.
* Stay away from commissioned sales people (because they have
incentives other than your best interests), and if you use an
advisor, be sure he or she is fee based.
* Above all, don't get overwhelmed by news, rumors and
predictions that are irrelevant to your strategy.
If you take this advice, I guarantee that pretty soon sleepless
nights will be a thing of the past and you'll be on your way to
more confidently and successfully (that means profitably)
managing your investments.
© Ulli G. Niemann
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