Pop Culture Finance wants you to believe in the concept of an absolute truth. They want you to believe that if you do A you will get B. It is absolute truth. They want you to believe that you will be just fine if you buy and hold investments for the long-term. Unfortunately, that is not a slam dunk solution to investing. It does not always work out okay if you follow that formula. I think that the answer lies in following a set of principles. I will start with the most important one first.
Pray about how you have your investments invested
Do you ever stop and think about including God in the investment process? It is the basis for stewardship and it is the first place to start. It was never meant for us to handle money decisions outside of our relationship with Christ and on our own. God cares about these decisions just as much as you do. Pray for wisdom and for Him to make resources available to help you make decisions. Seek and look for answers and trust that God will provide you a sense of peace when you make a decision. Without that peace, don’t make a decision. Finally, adopt Proverbs 22:3 and 27:12 as your principle for taking risk: “A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences.” God didn’t allow that verse to appear word for word twice in the same book by accident. It was for emphasis!
Stay invested in stocks when it makes sense to do so. That is a little different than staying invested all of the time. It is time to adopt the belief that it is okay not to always be invested in the stock market. You take risk by investing in stocks when it makes sense to do so and not for the sake of always being invested.
Know the level of risk you are taking and be comfortable with it.
What percentage of your investments do you have invested in stocks versus how much in bonds/money markets/fixed investments? If you have 60% invested in stocks (any type of stock or stock funds) then think of it as if you are taking 60% of the risk of the stock market. If you have invested 80% in stocks, then you are taking 80% of the risk of the stock market. The other percentage of your investments not invested in stocks would be assumed to be invested in high quality bond funds, money markets or fixed investments. If you feel you are taking too much risk, reduce the amount you have in stocks. Is this a slam dunk solution that always works? No. Remember that there are no perfect solutions. Also don't forget the fact that bonds AND stocks can lose money at the same time. It is just one of many strategies that you could use.
Know at all times where your investments are in relation to your investment timeline
With an investment timeline, you know where you are supposed to be at the end of each year. For example, by the end of the year let’s say that you need to have $400,000 to be on track. Today you are sitting at $395,000. That keeps everything in perspective. This tells you whether you are ahead or behind your goals. Remember, it is a year by year process. You need to know if you are falling behind. It gives everything perspective.
I am not suggesting that you micro-manage your investments on a day-to-day basis. At least evaluate everything on a quarterly basis. Always know daily how much risk you are taking and if you are okay with it. Understand how much you have gained or lost on every time period. Learning how to interpret numbers is a process of learning. The key is to start the process. If you want Bob to evaluate your risk level and your investments on a no obligation basis, call Judy at 972-386-0384 for a time slot. These time slots can fill up so act on it today! You can also email Judy at Judy@prudentmoney.com.