A good traveler has no fixed plans, and is not intent on arriving.
Just before the turn of the century, I started to become interested in finance. My university background was in English literature, education and psychology so the world of money and markets was completely foreign to me. I harboured some prejudices about the type of person who aspired to a career in that field. I pictured soulless men with slicked-back hair in pin-striped suits smoking big fat cigars. (Having watched business television for a few years – and reading Backstage Wall Street – it seems some people actually fit that stereotype.)
Still, what kept coming back to me again and again was that this strange world was not nearly as cold and calculating as I thought. Sure, there are plenty of snake oil salesmen and charlatans in finance – as there are in just about every other sector of society. But there are also a lot of folks who are just trying to make a decent living and take care of their families. Like it or not, money matters. But there’s a lot more art to finance than I ever imagined.
It’s been more than a dozen years since I first embarked on my trek through the money jungle. Since we’re into the heart of the summer travel season, I thought I would share some of the things I’ve noticed as I’ve studied the financial landscape from the outside.
1. It’s Not about the Money
Even the most greedy among us seem to be motivated more by what money represents than the article itself. For some, it’s about accumulating possessions to pad the ego. For others, it’s about comfort, safety, and freedom. Define what money means to you and you’ll define the way you handle it.
2. Dig Deeper
It’s great to read and listen to as much information as you can when you’re new to finance and investing, but it’s important to consider the source. After reading thousands of financial articles and dozens of books over the years, I’ve come to know who the permabulls and permabears are, as well as those with political motivations or guru aspirations. I’ve also found a few voices I trust consistently. No matter whom you listen to, it’s important to understand their motivation. Are they selling something or just sharing their knowledge?
3. Probabilities Rule
There are no certainties in finance or in life. Those who quote average returns and statistics galore across numerous time horizons can be mathematically correct, but that doesn’t mean that those stats are relevant to your financial situation or time horizon. You can usually find statistics to support just about any view under the sun.
Lack of certainty, however, shouldn’t mean lack of planning. I find using probabilities works for me. It helps control risk while leaving room for rewards. I always ask “What happens if I’m wrong?” If I can live with the answer, I proceed with the strategy. If not, I head back to the drawing board.
4. Finance Can Be as Simple or Complex as You Make It
You can choose to analyze every financial move you make down to the nano level or you can keep things very simple. It’s all about your strengths, weaknesses and comfort level. If you’re a spreadsheet-loving geek, go nuts with the details. You’ll probably feel better about your decisions. If calculators give you hives, you’ll need to find a way to make sure you’re headed in the right direction by choosing simpler financial tools and investments. It might be wise to enlist some help as well. Just be careful about choosing a financial advisor.
5. Stay on the Right Side of the Ledger
It doesn’t matter whether you choose complex options and futures strategies or simple ETFs or GICs as your financial tools of choice. As long as you have a plan and you’re steadily building assets and reducing debt, you’re on the right track. You can’t go wrong spending less than you earn.
6. Markets are Not Rational
I used to think all aspects of finance were based on math and logic. After watching markets operate for the past 12 years or so, I am still amazed at the degree to which psychology and emotion are endemic to the investment world. I’ve come to realize that markets are nothing more than a reflection of the collective psychology of the moment. They are as moody and capricious as an adolescent under the influence of raging hormones and conflicting emotions. Understanding this – without getting caught up in it – seems to be one of the keys to investment success.
7. There Is No Single Right Way to Handle Money
I’ve read about hundreds of different approaches to personal finance and investing during my tour of the financial world. Within each of those, there are thousands of opportunities to make choices and tweak systems. Beware of one-size-fits-all solutions.
8. Aphorisms vs. Platitudes
Some financial truisms stand the test of time while others are well past their prime. Pay yourself first. Understand your investments. These are pillars that will serve you well. Many of the canned investment lines that grew out of the mutual fund heydays of the 80s and 90s, however, are ready for retirement. How about “it’s not about timing the market; it’s about time in the market.” (Translation: You must never sell anything or our assets under management will decline and I won’t be able to make the payments on my yacht.)
9. Search Out Opposing Viewpoints
No matter what your views on money and investing, you can be sure that someone somewhere disagrees with you – perhaps vehemently. You can write that person off as a lunatic or you can look at their train of thought to see if you might be missing something. I like to listen to opposing ideas. Sometimes I incorporate parts of them into my own strategy, and sometimes they just verify that my current approach is a better fit for me.
10. Find Your Own Path
I’ve written about this on many occasions, but it seems like the more I learn, the more clear it becomes. There are so many paths to financial success – whatever that means to you. There are too many variables in life and in finance to get bogged down in vapid, one-dimensional approaches. And yet I also appreciate the need for consistency. Arriving at a structured, yet flexible financial plan is still a target destination for this financial tourist.
Do you see yourself as a financial native or tourist? What have you learned in your travels?
(Photo: taken by my husband on our recent trip to Prince Edward Island – one of the most beautiful places on the planet.)