Ideas on how to become rich: Financial Management - what the rich do in a down market, part 1

SALLY KLAUS AND HER FINANCE IDEAS:

FINANCIAL MANAGEMENT: WHAT THE RICH DO IN A DOWN MARKET

NB To my loyal readers, I am back from a long Economics examination period, and have completed my economic research on global capital flows. I might make it available here online for research purposes if the paper is released. Here is a series on financial management by Sally Klaus, my loyal reader, who contributes many good ideas and excellent materials for my Ideas on How To Become Rich site. Thanks for reading and cheers.


Each of these following financial rules would be discussed in future posts and in detail one at a time…

Don’t let your financial or money making plan be an accident
Everyone needs an “Uncle Frank”
Building your house
Combining dreams into a money making plan
Two strategies to win the battle for investment survival
Do you know where you are going?
Mix and don’t match
Our minds; our selves
The jockey matters as much as the horse
Riding out the storms
Building your house on rocks
7 quick ways to ruin
Take the road less travelled
Who are you?
What works for you?


Don’t let your plan be an accident

Asset allocation and asset planning are very important in the life of an investor. What is asset allocation or asset planning? First, you have to ascertain what kind of financial assets you want to invest and keep in terms of ranking such as how much cash you need, stocks you want to invest, unit trust, real estate, inventory etc…

It is not only to find out those financial assets that can grow, but furthermore that allocation is to find financial assets that will help you to have a balanced investment portfolio.

As the saying goes, it is not wise to put all the eggs in one basket, hence, it is thus vital for us to have many little baskets or few eggs in each basket so that at any time, we have both financial liquidity and profitability.

What kind of financial allocation or financial planning will depend on your financial goals in life, your financial circumstances and your personality. Today we are more fortunate in that we are exposed to a host of advisory and information from media and internet etc… unlike the investors in the past. It is thus easy for us to find out information very quickly and this will enable us to make quick decisions.

Think of the money or financial assets you have as players in your football team. Each has its strengths and weaknesses. You have your game plan. You know what you need from each player. So you need to think of the behaviours of each player before you make decisions to hold how many stocks, bonds, cash, or buy a piece of real estate.
So if you want to play offensive, you have to take advantage of economic conditions to buy certain financial assets or securities which are of higher returns or perhaps even inflation protected securities.

Since changes are fast and furious, your financial decisions have to be reevaluated now and then in response to market conditions so as not to be caught unawares.

One of the most fundamental elements of financial asset allocation is diversification. True diversification involves having several distinct kinds of asset classes that perform differently from each other in different kinds of economic or financial environments.

Some investments such as commodities or metals may thrive in a high inflation environment but others such as bonds or treasury bills or even mutual funds excel in a more deflationary environment.

Diversification will not only make the financial portfolio less volatile, it will also make your reaction to the state of financial markets more stable and less anxious.

Risk awareness allows us to ensure that we have discipline and also gives us the staying power to ensure our investment goals become a reality.

Everyone needs an uncle Frank – this idea means that we all need mentors or advisors, especially financially or investment wise

It is always a good idea to hear another’s views or opinions of financial markets, especially someone who is an expert or experienced in financial planning or financial markets. Knowledge is power and thus this person can help you to tone down your risk or quicken your steps in that he or she can help analyse luck and skills in investment successes.

Having a mentor also enables us not to make rash decisions or prevents us from becoming overly confident as he may play devil’s advocate and give you another side of the story. A good mentor will help you make better decisions because two heads are always better than one. It is also safer to travel in twos.

End of first part of this financial ideas series

NB special thanks to Sally Klaus and her contributions to Ideas on How To Become Rich – finance, investment and ideas site