Ideas on how to become rich - Financial Management - what the rich do in a down market, part 5

SALLY KLAUS AND HER FINANCE IDEAS:

FINANCIAL MANAGEMENT
Part 5

Welcome back to this financial management series here on my ideas site - what the rich do in a down market, by Sally Klaus.


The jockey matters as much as the horse

The selection of the fund manager, or stock broker, is as important as your investment assets themselves. Who is riding the horse, on what kind of track, and what kind of race are all important questions for you, as it is your investment money we are talking about here.

Is it possible to have exactly the right asset class and have your investment returns ruined by choosing the wrong investment manager. Yes, therefore it is important to select the right investment jockey for your investment horses. Whether you do it for yourself or use an investment advisor to seek out the best investments for you, you will be evaluating how well they know the financial track and how they have performed under different kinds of financial and economic conditions in the past.

Passive investing is not as good as active investing, where the goal to do well is part of your life, whereas passive investing is mostly relying on the investment choices and investment paradigms of the fund managers or the jockeys. Active investing gives you direct control of your financial choices and enables you to be able to judge your investments better. The flow of financial information is also better and more direct.

Yet, sometimes, you do not have the time to invest directly, so it is indeed necessary for you to get a fund manager or a metaphorical financial jockey. So some of the questions would be, if you are not going for active investment but for passive investment:

What are the ethics of the fund manager, his investment philosophy and his investment or financial discipline…?

If you discover that your jockey is not doing well, you may have to change jockey mid stream to prevent future investment losses or poor management of your assets. In the long run, you have to monitor the investment manager’s performance closely; perhaps, even closer than you monitor your own financial asset allocation mix. It is essential to make sure that your investment portfolio has a good day at the investment track and is working hard to make your investment dreams a reality.


Riding out financial storms

Be prepared for the inevitable. And financial storms are definitely inevitable, just like the immutable law of gravity. What does up must come down, and vice versa. Be aware of market cycles and the financial movements of all those up and downs which may be out of our prediction and control. The need to protect yourself is there, just like insurance – how much coverage do you want? How high is the value that you are insuring? The higher the value of the asset and the lower the deductibles, the more the protection will cost. The more you cover, the more it costs, so you have to weigh the pros and cons of your coverage. You must always ask yourself: what is it that you want at the end of the day?


Building your house on rocks

The stronger the foundation, the better and more solid the house will be. This is commonsensical and thus it would be crucial to decide how your human capital is going to turn into your financial capital at the end of your own personal investment journey… it depends on several things. How much you earn, how much you spend, your lifestyle choices, your plan for taxes and inflation … all these are important financial questions that you need to ask yourself.

It is important to keep in mind that each of us is different and the investment path for converting our human capital into financial capital will not be as smooth as what we hope it to be. Still it is vital for us to build up a steady investment/ financial conversion journey so that we allocate investments properly.

End of the fifth part of this “financial ideas” series

Special thanks once again to Sally Klaus and her invaluable contributions to financial education on Ideas on How to Become Rich. She has been a great help to my finance, money, and investment blog. Thanks for reading and cheers!

Ideas on how to become rich!