Sunday, 17 January 2016

Financial Matters

By Ben Carlson, CFA

“If I were an executive coach, I would try to focus each individual on the facets they can control. Emphasizing what’s in your control allows you to adopt an attitude of equanimity toward luck. You've done all that you can, and from there you have to live with the results—good or bad.” – Michael Mauboussin

Wading through the overwhelming noise can be a chore when dealing with your finances and investments. Here’s my list to help you decide what really matters and what you can do without when making financial decisions.

Doesn't Matter: Your theories on tax policy.
Does Matter: Taking advantage of tax sheltered retirement accounts.

Doesn't Matter: Developing tactics for every short-term market move or geopolitical risk.
Does Matter: Crafting long-term principles that can guide your actions through multiple scenarios.

Doesn't Matter: Your political views.
Does Matter: Creating a comprehensive financial plan.

Doesn't Matter: How cheap your trading commissions are.
Does Matter: Keeping your overall investment costs in check.

Doesn't Matter: The inevitable market correction.
Does Matter: How you react when stocks fall.

Doesn't Matter: What happened in the market yesterday.
Does Matter: An understanding of your time horizon.

Doesn't Matter: Trying to time the market.
Does Matter: Your behaviour so you don’t buy high and sell low.

Doesn't Matter: The value of the U.S. Dollar.
Does Matter: Improving your career prospects to earn more of those dollars.

Doesn't Matter: Your thoughts on where interest rates are heading this year.
Does Matter: Your tolerance for risk in your portfolio.

Doesn't Matter: Trying to explain why the market rose or fell on any given day.
Does Matter: Ignoring the endless noise about daily market moves.

Doesn't Matter: How rigged you think the CPI inflation calculation is.
Does Matter: Your personal spending inflation.

Doesn't Matter: The next release of the minutes from the latest Fed meeting.
Does Matter: How much money you save.

Doesn't Matter: Having the highest IQ in the room.
Does Matter: Developing your emotional intelligence.

Doesn't Matter: Arguing with people on Twitter about their stock picks.
Does Matter: Keeping the negativity in your life to a minimum.

Doesn't Matter: What your brother-in-law says he made on a penny stock.
Does Matter: The fact that 8 out of 10 small businesses fail within the first year.

Doesn't Matter: How many jet skis and snow mobiles your neighbour owns.
Does Matter: Your net worth.

Doesn't Matter: The next 3-5% move in the stock market.
Does Matter: Increasing the amount you save each year by 3-5%.

Doesn't Matter: The daily value of your portfolio.
Does Matter: The value of your portfolio when you retire.

Doesn't Matter: Making occasional mistakes with your finances.
Does Matter: Continuing to make the same mistakes over and over again.

Doesn't Matter: Spending money on things that make you happy (meaning it’s OK to do this).
Does Matter: Cutting back everywhere else.

Doesn't Matter: Losing money in your portfolio occasionally.
Does Matter: Running out of money before you need it by not taking any risk.

Doesn't Matter: Buying stocks at the absolute top or bottom of the market.
Does Matter: Dollar cost averaging over multiple decades.

Doesn't Matter: Consistently beating “the market.”
Does Matter: Slowly building wealth over time to achieve your goals.

Doesn't Matter: How high frequency trading affects the market.
Does Matter: How little you trade in your accounts.

Doesn't Matter: That one stock you sold too soon or didn't buy early enough.
Does Matter: The opportunity cost of not saving early.

Doesn't Matter: The number of stock tickers on your watch-list.
Does Matter: The number of books you read.

Doesn't Matter: The latest pundit predictions.
Does Matter: Understanding financial market history.

Doesn't Matter: The specific investment strategy you choose to implement.
Does Matter: Your ability to stick with that strategy over various cycles.

Doesn't Matter: The upcoming GDP or unemployment number.
Does Matter: How little you worry about a single piece of economic data.

Doesn't Matter: Your stock picking skills.
Does Matter: Your asset allocation.

Doesn't Matter: Having a positive outcome every single time you invest.
Does Matter: Having a rules-based process.

Doesn't Matter: Predicting the next Black Swan.
Does Matter: Your ability to focus on what’s within your control.

Doesn't Matter: Specific, context dependent advice.
Does Matter: Long-term thinking.

Doesn't Matter: The interest rate you earn on your savings account.
Does Matter: Allowing compound interest to do the heavy lifting for you.

Doesn't Matter: How much risk everyone else takes.
Does Matter: How much risk you are willing and able to take.

Doesn't Matter: Doing something all of the time.
Does Matter: Doing nothing most of the time.

Quote for the day

"We use a lot of grapevine ideas, asking people what they've finished buying that might be interesting. Why not look at what other great investors have found?" -  Bruce Berkowitz