RSSManaging Your Money - Not the Market
By Jim Farrish | July 07, 2008 | 1:04 AM | 3 Comments
It is easy to get caught up in what the market is doing and forget about what you are doing. In teaching investors how to take control of the their portfolio this is one thing I stress consistently. The market will do what the market is going to do and there is nothing you can individually do about that. So, why try! Stay focused on your money and let the market do whatever it will. How I came to this conclusion was by stepping back and looking at what makes up the market. If we are looking at the US equity market it would be individual stocks or packaged products of individual stocks. The owners of those stocks fall into essentially two categories, institutional and individuals. The institutional stocks are in reality run by individuals who are professional traders/investors. So, it all really boils down to individuals owning the stocks. As we have discussed, in other parts of this discipline series, individuals differ in opinion and they get to vote that opinion every day by buying, selling or holding their stocks. Therefore, the market is individuals with differing opinions. I have my own opinion about stocks that make up my portfolio, and therefore listening to someone else’s opinion about why I own them could change my mind for no good reason. Therefore, manage your money – not the market or others opinions.
As an investor I want to manage my money relative to what I want to accomplish. What others think is interesting, but in the end it is your money, your goals and your decisions that matter. I love the power of money management and the lifestyle it gives me. For example I have four daughters. At birth it dawned on me that I was responsible (my decision, no one else’s) for providing money to send them to college if they chose to go. In addition, someone told me the parents of the bride pay for the wedding. Whoever came up with that crazy notion should be talked to. So, I came up with a plan. Based on what college would cost assuming inflation, etc. when they turned 18 went into my calculator and I came up with the number of $7,500. I then told the grandparents it would be a great gift if they would each place $3,750 into a college fund. They did and I managed the money to accomplish a 12% rate of return. The goal was defined, the money invested with the end objective in mind. My oldest daughter is a senior, and her sister is a sophomore. They both still have enough money to graduate on time without costing me any additional money. The other two have funds set up as well for when they go to college.
The important part of this story is that each of them were taught to manage their college money and I accomplished that by teaching them to visualize the market through sectors. Find the parts that are leading. Use a defined strategy for getting in, getting out, and a defined target/goal. Know why you are investing - college education. Focus on managing your money based on what you want, and let others do what they want. In the end it comes down managing the money and not the market.
Hopefully, my children will have enough left in their college and wedding funds (both grandparent funded by the way) to put a down payment on a home. Focused money management. In the words of MasterCard – Priceless!
This is part 7 of a daily educational series Jim will provide until next week, exclusively here on greenfaucet. Click here to read part 6
| 
|
Comments (3) | Related Topics » Education | Farrish Files | Personal Finance
|
|
|
