Invest Only What You Can Afford
There are varieties of investments out there. Some are good, some are not so good and some are naturally better than others. Some people will make money from the unlikeliest of sources while others will lose money even from the safest of investments.
So if you try to invest all your money, it is very likely that you will find it hard to sit still. You may find trouble sleeping because you are worried about losing your money. Or, you are worried about what will happen if you lose that money.
Furthermore, some people are just not cut out for investments. They cannot take what others accept as usual behaviors. For example, a friend of mine recently went into the stock market for the first time. The company she was working for was listed on the stock market and she took up her staff entitlement of ten thousand shares. I knew that she would make money as the company was doing a roaring business. So, me and friends told her to hang on to her shares even when others employees were selling theirs.
However, she kept calling me and my friends every other day to ask about the shares. “Everyone here in my company is selling. What shall I do?” she asked. Her voice always sounded panicky. “Don’t worry, just hold on,” We told her. And this went on for about 3 months. In the end, I came to the conclusion that shares were not for her. If the shares went up by ten cents, she will be happy. If it went down by the same amount, she will be worried. In other words, she was greatly affected by the price fluctuations., which by the way, is just normal behavior of all shares on the market.
So, finally, I told her to sell the shares. She made about $1500 in all, which was not too much but she was happy. And this is the main thing. More importantly, she was happy not to be on the stock exchange.
The same thing would apply to the rest of us. There are some investments out there that are not for us — they make sleeping nights impossible. We will be worried sick thinking about them. So, stay away from these “sleepless nights” investments.
And in the same light, invest only up to a comfortable level. Where you can sleep easily at night and where you are not worried about the events taking place in the world. This rule applies even in what you believe to be the safest of all investments. If eighty percent of your money is invested in the stock exchange, it would be a good bet that you will be a very jumpy guy. The slightest event will cause you to flinch. If the Finance Minister ever has a heart attack, you’ll probably be joining him at the hospital!
Another method that can help you manage your finances better is to have a separate portfolio for your investments. For example, I have separate accounts for my retirement, for my children’s education, and for investment opportunities. Like clockwork every month, I banked in the money in these 3 accounts and keep them separate. There are two advantages to this. First, I know exactly how much money I have for each account at any one time. And the second one is that I can invest the money better as I know the objective of each account.
I can afford to take more risks with my retirement account as I will only need that money toward my late fifties. This money can be invested in stocks and high-yielding unit trusts. As you can see, I am trading risk for higher returns.
But I go on a different route in my investment opportunity account. Here, I need the money to be in liquid form to take advantage of any opportunities that may present themselves. As we all know, some opportunities do not hang around conveniently for you. They come and go. This money, most of the time, will be placed in the normal saving account. Whenever an investment opportunity arises, I can cash out and take the plunge. (of course, after only studying the opportunity carefully).
It is also very important to keep the account separate. In other words, do not use the money in one account for another purpose, and do not transfer the money from one account to another. You must keep them separate to have any hope of reaching your goals. This takes discipline, of course.
The moment you start borrowing money from one account to patch up another, you would have lost the battle. Once a leak starts, it is difficult to patch it up. It takes much time, discipline, and of course, money. Which makes it very, very hard. In time, more and more leaks will appear. End result, you lose the boat and sink into the deep icy waters. Another fallen hero, another sad statistic.
That’s all for now, my friends. See you all in my next articles.
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