Ask for help when unsure about markets
By Gary Silverman, CFP®
Recently, we’ve been talking about using goals to help you determine your investment strategy. I left y’all last week warning about the need to make sure that the markets do not surprise you and ruin your investing.
Good surgeons are not surprised when the unexpected happens in surgery because they learn about potential problems and train how to manage them. Good mechanics are not surprised when a bolt-head shears off even if they have never seen it happen before. They have observed and learned from others. In the same respect, good investors know what the markets have done in the past and what they are capable of doing in the future. They don’t get carried away with the euphoria of the moment if an investment seemingly doubles overnight, nor do they panic when it plummets back down to earth.
If you don’t understand what is going on in their heads, some of the world’s greatest investors will even seem dumb at times. In 1999, many thought it was stupid to keep only a modest portion of their stock investments in technology. After all, why miss out on what was a sure return? Twenty, 25, 30% returns were the norm. Why keep any money in other sectors or other assets? Technology was royalty and the Internet was king. But when the king lost his crown, those “dumb” investors, the ones who didn’t put all their eggs in one basket, did not lose theirs.
So how do you keep the markets from surprising you? By studying. By going online or to seminars or by reading books and finding out how the markets work and how sometimes they don’t. By reading this column. Knowledge can prevent irrational exuberance and calm fear, allowing you to take back control from your emotions and let knowledge and logic guide you instead.
Are you ready for all that work? No? Then hire it out—and milk the professionals for their knowledge. Ask both the upside and the downside of any investment. Ask how it fits into your portfolio and why they think this. And watch that they give you knowledge and expertise rather than tapping on your emotions just to separate you from your money.
You know what your goals are. You’ve learned not to be surprised at the turns the market can take. You know that even if you hire a professional to do all the dirty work, you are not an uninterested bystander. This is your life, after all…or at least your money. You are the one who will have to live with the results. And just knowing how the market works doesn’t mean you’re comfortable with it. You never want to invest in a way that has more risk than you can stand.
What are the risks and how do you know what amount is appropriate for you? We’ll cover that in upcoming columns.
This article was published in the Wichita Falls Times Record News on February 5, 2017.
Gary Silverman, CFP® is the founder of Personal Money Planning, LLC, a Wichita Falls retirement planning and investment management firm and author of Real World Investing.