We have a CD titled, “Money Rules”. No it’s not about rules. It’s focused on how money rules our lives and as a result we should learn to manage the money versus letting money manage us. There are Ten Steps on the CD to follow as you learn to rule your money. If you would like to download a copy of an interview with Steve Crowley covering the rules, go to the home page of SectorExchange.com and download the interview. Over the next couple of weeks I thought a brief outline on each rule would be helpful as we work through the volatility in the current market cycle.
Since the high on April 23rd the broad market has had more issues to digest than we can count. They have all created a tug-o-war relative to direction and thus made managing money very difficult for the average investor. Depending on the strategy you use for money management, volatile periods can create more heartburn than returns. I have this opinion. If the volatility is too much step aside and wait it out. Thus, the argument for ruling your money! Don’t get sucked into the mind games of feeling you always have to have 100% of your money invested. The old saying, “you make money by not losing money”, applies each day in the markets.
Money Rules is Ten Steps to ruling your money. Let’s start with number one – Define What You Want. This is something we have to be mindful of every day. It is the ‘why’ factor for investing. If you don’t know why you are investing then you are already behind in the process. It is a given that the number one answer to the question, ‘what do you want from your money?’ is, “to make money!” That is an acceptable answer assuming you can answer, why? What do you want more money for? Better lifestyle? College education for your children? A new car? A new boat? A trip around the world or some other travel destination? A comfortable retirement? Get the picture?
The why factor for investing is the key to becoming a successful investor (my opinion). My rational for this statement is, if the why isn’t big enough the how will never matter. How, in other words, is driven by why. For example, you want to buy a new car and need $35,000. You have accumulated $20,000 towards the process and you have set a time frame of two years. You can save $400 per month towards the objective and that leaves a return of 9.7% per year on the money. Now you can determine which investments best suit this objective. In addition, you can determine which strategy to deploy relative to this money. This puts you in control of the process, or better said, YOU rule the money to deliver what you want.
It sounds simple and unnecessary to many, but to others the process is exactly what they need. I have been managing my money for over 30 years. I have tried to manage money based on a strategy versus one driven by the why factor. The results are consistently better when the why is clearly defined.
Several years back I took $100,000 and put it into a separate account to manage. The goal was one many times stated to me; make the most money possible. In other words maximize the return any way possible. The time frame was two years and off I went. The results were a portfolio balance of $150,000, give or take a few dollars, and more than 150 trades. As I went along studying the results it taught me plenty about my trading habits under this approach. In the beginning the draw downs were bigger than any I had experienced in other strategies. I made adjustments to accounts for excess risk and brain damage from the losses. In the end I found myself so focused on the trading process I lost any appreciation for what I was trying to do other than make money. In no way am I saying you can’t do this type of trading. What I am saying is I didn’t like the process for me. Thus, know what you want and why!
Take some time to determine what you want. Determine your why for investing and develop the how accordingly. There can be different what’s and why’s assigned to various accounts. The goal is to get what you want from each one by implementing a defined strategy for managing the money.