Build A Safe Financial Base, Avoid Combining Strategies
Last year I started getting into rock climbing, bouldering specifically. I was going nearly every day, doing some weightlifting in the downstairs gym, but mostly spending my time bouldering.
For those familiar with the grading system, I started out at V0 and spent a long time getting comfortable to do V2’s. I started attempting some V3’s but that’s when it’s more about problem solving than skill. I knew I had the physical ability for a V3, but I didn’t trust my grip and wasn’t willing to trust my body to shift weight.
I finally got up to V4’s and not that much later was regularly trying V5’s though I would say I was completing less than 50% of them. V5’s are a lot of fun, to get good at them it’s important to practice.
I Overtrained, I Overdid
The problem was that I overtrained. I didn’t suffer a particular injury, though I always have one joint or another that’s pleasantly sore. It was a sudden onset of loss of emotional stamina and lack of desire to go back.
It came with no warning, I just didn’t want to go back to the gym. Sure, there were a few minor personal things going on, nothing major, which I probably used as an excuse in the back of mind.
I was doing way too much. I was training on the campus board a few times a week, I was constantly pushing myself to do tougher problems, I was weightlifting downstairs and I was biking some insane mileage for my commute to work.
I kept focusing on the V5’s, most of which I failed to complete. I stopped giving myself any credit for completing V3’s.
You Can Overdo Investing
This post is about simplifying investments, preventing burning out and avoiding an investment portfolio that is either too complicated or requires too much work to maintain. Much like training for sports, it’s quite easy to overdo it.
The most common example is daytrading. This term is used to refer to anyone who needs to be glued to their laptop screen in order to make money from their trades. There are various methods which I won’t get into, suffice it to say that it is laborious, time-consuming and a mentally exhausting endeavor.
Daytrading can definitely be profitable, but the amount of work needed to make it successful is grossly underestimated.
Many investment strategies can be financially profitable, that’s not what we’re discussing here. The point is to find something slightly passive, planning for a long-game, building up an investment strategy which grounds the foundation for your overall investment portfolio.
It doesn’t’ matter how lucrative an investment strategy is, if you burn out from it then what’s the point?
The Ideal Investment Strategy
Use one that makes sense to you, one that you can learn a lot about without a ton of effort. One that requires some upfront work but minimal upkeep. Even better if you can partner up with a financial coach who can guide you through it.
There are those who buy 1 fund, one single mutual fund, and invest everything into it from the day they start investing, until the day the money gets passed on to heirs.
I am not saying that’s what you should do, though I dream about that simplicity from time-to-time. The point here is that a simple portfolio requires less attention from you, has fewer variables that you can tinker with and has more predictable up/downswings.
Constant tinkering with a buy-and-hold strategy can be detrimental to your portfolio’s health. By tinkering you are combining strategies – let’s talk about why that’s unwise.
Don’t Combine Strategies
This is a killer of so many great investment strategies. When you take a proven method and start injecting your own ideas into it, thinking that you are fine-tuning it, then in fact you are ruining that particular investment strategy.
The classic one that’s bastardized is the buy-and-hold strategy of broad index funds. The purists will pick 2-5 funds, come up with an asset allocation percentage, and rebalance a couple of times a year – done.
Those who don’t get the point of this system, treat the funds as stocks, waiting for a right time to buy more and trading out when they think they can profit from it. At the same time, they often bail out when the market tanks and they jump in when all which everyone is talking about is… you guessed it, is index funds.
Coincidentally, index funds are all the rave right now. But wait a few months/years and when they start tanking and returning shitty profits for half a decade or more, nobody will be singing its tunes. All the while, it likely will remain a perfectly viable, profitable and sustainable investment strategy.
If You Need To Tinker
An index fund strategy doesn’t take a whole lot of work. It’s probably a good idea to have a financial adviser hold your hand through it the first couple of years. More importantly, you want to go through a market crash with that adviser and maybe even enjoy a bull-market before going out on your own.
If you’re jonesing to tinker with your money, to invest in your own little concocted strategy, then take a small percentage of your investments (2-5%) and do with it as you please.
But don’t lose your solid footing. The floor of your investment strategy should be something that requires minimal involvement from you, otherwise your persistent overdoing can cause it to fail. Let that base maintain and give you something to build on.
Then use that 2-5% to “practice” with. You can try your hand at real estate speculations, money lending, futures, currency, options etc. You likely aren’t going to lose all of it but it won’t be a big hit if you lose most of it.
Other Investment Bases To Build On
Every person has their own unique tolerance, which is why it’s important that you pick the strategy that makes the most sense to you. By doing so you have the best chance of sticking with it and making it through its ups and downs.
Your base investment strategy doesn’t have to be index funds. You could choose to do rental properties instead. Again, doing so means that you focus on the investment strategy and that you don’t start mixing strategies. If you are buying a house because it makes for a good investment don’t go trying to pay off all the debt on the house as soon as you can. Don’t go trying to flip it because the house sits empty for a month between tenants.
You could invest in CD’s.
You could build a large portfolio of insured municipal bonds.
You could invest in Whole Life insurance (be very cautious with this, usually a bad idea).
You could build a few fixed annuity products which are insured.