Getting Going

How do you get started investing?

Photo: Tyler Main. Source: USMC

I got involved with investing via a different route. I had studied computer modeling in college in the early ‘80s. While looking for a job, I met with a bank manager who had a computer model for the bank’s earnings and balance sheet, but didn’t have anyone that could run the model. Tentatively, he hired me to implement the computer simulation. I got the analytic software to work much faster than expected, so he put me onto different tasks. I quickly learned how important investments are on a bank’s balance sheet—how they can be used to help a bank match its assets to its liabilities.

Essentially, I came to investing by studying liabilities. And that’s not a bad approach. The reason we invest is to meet future financial needs—our future liabilities. For example, at some point, most of us want to retire. We’ll need a source of income to live on. That future demand is a liability, so we save and invest now in order to meet that need. The amount of time we have until we need the money will help determine how much risk we can take—how much volatility we can put up with in our portfolios.

Every investor is different. We all have unique needs, wants, and dreams. We also have varying resources: our jobs, skills, and relationships. These combine to create a distinctive asset/liability structure—our extended personal or family balance sheet. Your investments are just part of this picture, and the part you probably have the most control over. That’s why investments are like clothes—there’s no “one size fits all.” They have to be cut and fit to match the unique size and shape of your individual balance sheet. (It’s also why I’m skeptical that robots will turn out to be very good tailors. But that’s a different discussion.)

Tailor’s shop. Photo: Wolfgang Sauber. Source: Wikipedia

The first rule of investing is to “know yourself.” Before we buy a stock or think about asset allocation, we need to understand what we own and what we owe: our assets and liabilities. Only then can we match our investments to our lives—and have portfolios that fit.

Douglas R. Tengdin, CFA

Chief Investment Officer

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