Everybody has their own ideas of how to live life. Investments are just one of many ways this is shown. For some, day trading and constant reallocation of funds is recreationally and financially satisfying. For others, they like to keep it straightforward and not be in constant flux about their next steps.
As you plan your investments, you need to do a thorough self-survey in these areas. You need to make sure you are following the course for you, not for the big-talking co-worker or relative who claims massive gains.
Evaluate yourself in these key areas before getting tied down with a strategy.
Table of Contents
Perceiving Your Tolerance for Risk
Let’s review a basic concept from finance. Say that you have a mortgage at 5.1%, and you owe $120,000 on it. Uncle Fred unexpectedly passes away, and even more unexpectedly, he leaves you $150,000. You begin investigating investment options and find that you can achieve an interest rate of 5.5% while maintaining enough liquidity to satisfy you.
The most logical option would be to continue paying the mortgage even though you have enough money to pay it off, because you are actually 0.4% better off to do so. Yet many people prefer to pay it off anyway, because they like the idea of eliminating that monthly payment more than they like the interest advantage. Are they wrong? No, as long as they fully understand what’s going on. This is where money intersects with value; the homeowner who pays it off is valuing the end of that debt at some amount over 0.4%, because he or she is giving up that amount of money to do so. And if that makes you happy, you should do it.
The endgame of investment is to understand the factors going into your decision and to be certain of your comfort level.
Knowing Your Life Stage
In many situations, there is no single answer that suits every investor. When Al Masah Capital tweets about something breaking with investments, you have the opportunity to take advantage of it. It doesn’t necessarily mean it’s a gold-letter moment, but depending on your tolerance for risk it might be something you’re willing to roll the dice on.
One of the key factors that determine whether you should go Vegas on the suggestion or play it safe is your age. At 25 years old, you can have a much higher tolerance for risk than at 55, because you have time to recover before retirement. The Chrysler Corporation was a perfect example of this during their late 70’s and early 80’s crisis. Young investors saw shares getting down to a couple of bucks and figured the risk was worth it, since one of the Big 3 automakers was highly likely to return to profitability at some point. But those who expected to retire before Reagan’s second term ended were more reserved and knew it might take years for that recovery.
Understanding Upkeep
Some investors just like to keep things simple. They prefer low-maintenance investments that don’t require frequent complex decisions. They just want to sock their money away, achieve a reasonable interest rate, and begin drawing money out at retirement.
Others like to work the room, so to speak. They are intrigued by emerging markets, so an investment company like Al Masah Capital might sound like a great opportunity to them. They utilize complex investment strategies to maximize revenues.
Once again, is either of these investors wrong? No, they are both right. The steady investor has a perspective of investments being important tools for financial security after leaving the workforce. That investor wants to maintain a steady standard of living without having outside employment.
Our high-activity investor achieves satisfaction from the victories he or she achieves in daily or weekly transactions. The returns received aren’t just financial, they’re competitive. And again, as long as both investors understand the repercussions of their courses of action, they are both doing the right thing.
About Carson Derrow
