One of the very first questions I am asked when meeting with clients, or prospective clients, is “What do you think about XYZ stock?” This question is the product of Wall Street, and the exact wrong first question to be asking.
If you are going to invest in the market, then you are accepting the fact that your investment might go to zero overnight, without warning. One can argue the likelihood of going to zero is improbable depending on the investment. That is why the very first question investors should be asking themselves is “How much am I willing to lose?”
By defining your devastating loss, you are establishing investment parameters for yourself that, if followed, create discipline and allow you to sleep better at night knowing your investments are in line with your personal feelings regarding the market. Every investor wants all the upside and none of the downside…a very unrealistic and impossible request. By discovering your own personal limits for loss, you are also discovering your own personal limits for gain.
Only after the investor has discovered their personal appetite for risk can the proper investment strategy be designed and ultimately deployed. Most investors start with the deployment and only after they have suffered devastating losses do they then ask themselves the question they should have asked first ”How much am I willing to lose?” Well, at this point you’ve already lost it and what’s done is done.
Take some time this week to think about for what purpose are you invested in the market, how you are invested in the market and whether or not your investments align with your own investment personality. Discover your goals. Design a plan that aligns with how you feel about investing. Deploy and monitor the strategy.
Discover. Design. Deploy.
Take five minutes and find out if your investments are traveling faster than you are.
David M. Bonnichsen
B. Chemical Engineering, Georgia Institute of Technology
Our belief is that everyone deserves quality, affordable and disciplined advice regardless of their socioeconomic status. Our goal is to make a meaningful impact in your life every day and in return be the first call you make when advice and guidance is needed. Welcome to Phoenix, where you and your best interests are always first.