Photo: Stuart J. Whitmore. Source: Morguefile
Lots of folks ask me for a quick tip. It’s natural when they hear that I help people manage their money. After all, if you can find the next 10-bagger before it goes parabolic, you could spin the straw of your savings account into retirement gold. Or we think.
But investing isn’t like that. It’s not about getting lucky. When we invest, we put our money to work among economic enterprises where we don’t know the future. That’s an inherently risky undertaking. So many things can go wrong: the economy could fall into recession, gridlock might shut the government down, fickle consumer tastes can change.
But competent business managers can cope with change and even thrive. And contrary to Dilbert’s vision of the pointy-haired boss, most managers are competent. That’s why IBM has been able to reinvent itself four times during the last four decades. That’s why Apple could create the whole notion of mobile computing. A growing economy means more good things happen than bad things. We just don’t know what we don’t know.
Photo: Laura Musikanski. Source: Morguefile
But what we do know is our own plans and aspirations. If we understand ourselves—what we need, how much risk we can handle, how soon we need the money—that knowledge implies certain things about how to invest and what to buy and sell. That’s why investment advice should be tailored to the person receiving it. Not everyone can handle investing in tech stocks. Not everyone should. Sound investment decisions grow out of a deep understanding of our present and future financial assets, liabilities, income, and expenses. It’s more like accounting than gambling.
So, want a quick investment tip? Make a plan.
Douglas R. Tengdin, CFA
Chief Investment Officer