So Dad, How Can I Make Some Sense Today? – Part 5 of 5 (Yep, this is it!)
Updated: Jan 17, 2021
So Dad, how do we wrap up this investment conversation during social distancing? I have more things on my mind right now.
You’re right, there’s many more important things you should be focusing on these days, but this topic is going to pop up again soon. Your health, the health of your loved ones/friends/neighbors/co-workers/and all other members of your community should be your highest priority. You’ll also need to find a way to mentally escape from all the troubles of today – whether that’s to pull up a good movie, do a puzzle, call your friends, dabble in some art, practice your cooking skills, exercise, play your own music. Yes, there are a lot of other things you might want to do.
But this investment conversation is going to pop up again. Soon, you are going to get your March financial statements, or they will be available for viewing. Peeking at your retirement account might be something you’re trying to avoid. Understandably. Most every news source has shared stories of the losses reported in the financial markets. But understand, not everything is down. Some investments are up in value, and some investments will be going up soon. Working with your financial professionals should not produce the same results of the markets – because generally, you don’t own everything in the markets. Financial pros help you balance your tolerances for risk as you seek both stability and performance. And their job is also to help you work with your emotions.
But this is where the tricky part can slip in. For many, fear of loss has a firm grasp on them. Others might be looking for opportunities to make investments in securities at what they believe are good values. “Buy Low, Sell High” is on their mind – and logically so, or is it? – logical that is. Fear isn’t dominating them at this moment (though it might still be present if they’re truly honest). It might be the emotion at the other end of the spectrum sliding in – a little bit of greed. Seasoned, good, investment professionals know how to work with these emotions, because greed can shift an investor into a gambler without them really knowing it or if they aren’t careful. Dad, what the heck does that mean?
In the last article, we talked about having adequate cash reserves (savings) for our immediate needs. Now, we’re talking about investing and gambling. Investing is a long-term approach to get better returns (adjusting for risk) than are currently being offered. Investing should be done carefully according to plans that you have set up for your future.
Wait – what??!! I should have a plan? What plan? I don’t have a plan. I don’t know how to make a plan. How do I get a plan? Oh wait, I have a plan “Buy Low, Sell High”’, right?
Building wealth is more than just buying securities at what you might think are low prices. (And hint, many times they can go lower.) This is where greed can slip in. Buying something just because it is down with hopes it will go up isn’t generally investing; it’s more like gambling. Investing is buying something because of the guarantees it holds (as in CD’s or bonds), because of the income they might produce, or the services it offers that we think we’ll need or want. It’s much more deliberate than buying something because it’s down. Your investments will need to fit together to take care of you. Gambling is buying it because it’s down and you hope or believe that it will go back up, and soon.
Well, if I’m right, I’ll make some money. What’s wrong with that? Nothing at all, but is that how you want to take care of yourself in the future – hoping what you buy goes up? What if you are wrong and it doesn’t go up, or goes further down instead?
There are many, more predictable ways to build wealth than having something go up quickly over the next month or two. And let’s face it, you’re most probably going to need to work on building the funds necessary to take care of you for a long while – unless you win the lottery, and that’s not a great plan to count on either. That’s where good professionals can help you. So Dad, what do I do?
This is where we started (– see title above). I began writing these articles to help you in this confusing time. I started with calming myself and assessing my situation. I paused and asked what I’m needed to do as opposed to what I need to do. Then I talked about cash reserves, and now I’ve tried to shed a little light on the difference between investing and gambling. But more importantly, throughout these articles I tried to help and encourage you to talk to the people you trust and, where appropriate, talk to financial professionals.
My best advice for you is to keep asking questions. Keep learning and stay engaged with this topic. It is very important. (And bravo for reading through these articles – you’re learning!) In this unprecedented, chaotic time, it’s easy to get a little afraid or unsure of how to proceed. But know this – you’re not alone. You have others you can contact that stand ready to help you learn to take care of yourself – financial professionals, both within your employers and in general. Use them. Build a plan. Follow and adjust your plans and keep learning. That’s what I think you should you do.
Take care and stay well. We’ll chat again soon.
For more insights about Wealth-Building, please check out my book “So Dad, How Can I Make Dollars & Sense?” Click here for more information on purchasing a copy. Thank You!