We have gone through great emotions on the stock market since the beginning of 2008. It is funny how we react to market fluctuations; we first live in denial, then we are frustrating, then we panic… and we quit or accept it… sound like living through a grief, isn’t?
But since we are getting closer to Christmas, I won’t talk about grief, but more about food. We are all preparing our stuff to host some of our family or friends over for the Holidays. So today, I am offering a few tricks to cook the right investment soup to get served well in 2010 and not create a mess in your kitchen:
Most men had experienced this during their first cooking experiment: if you leave your kitchen while your meal is boiling on the oven, catastrophes can happen. I know that you really had to write this email and it was only for 2 minutes, but you can’t leave your soup along while you are cooking. This is the same thing with your investments.
You have to make sure to look at your statement every quarter to make sure:
#1 you understand the investments shown on your statement
#2 you understand the fluctuations (positive and negative)
#3 you don’t have unnecessarily cash in your account
#4 you can follow the original investment strategy that was put in place
If you don’t take care of your investment quarterly, your investment soup can definitely turn sour and it may be to late to recuperate anything out of it.
It is important to trust your financial advisor, but it is also important to make sure you have the right ingredient and the right dosage of each of them in your soup.
If your advisor is telling you that Curry is the spice of the moment, it doesn’t hurt if you add a little bit of it in your soup. However, if you drop the bottle in it, you rest assured that your soup won’t taste that great in the end!
So using the right ingredient means to use the right asset allocation and make sure you us low managing cost investment solutions such as ETF’s or mutual index funds. There are no need to pay 2.5% in MER’s these days!
(some ingredients are not tasty at all!)
For those got burned by too much Tabasco in their soup, they might be tempted to leave it plain and not only forbid Tabasco from their kitchen but to put any kind of spice away from their soup. If you do so, you will never use the wrong ingredient… on the other side, you will never have a great soup either!
Fixed income options (bonds and CD’s) don’t offer much to feed your retirement account for now. You will not only get very small return rate, you will also exposed yourself against the risk of rise of the interest rate. This would obviously put the bond price to tank and your investment portfolio will not only not generate any growth, it may also show negative result during the span of 12 months.
We are currently entering into a small kitchen with poor ingredients while we have to face a very tough and hungry (read sometimes angry!) critics (investors…). Most people are reluctant to invest in the stock market because they are afraid to get burned while they will complain about the tasteless aspect of fixed income. Making the right investment soup in 2010 will be quite a challenge. However, I still believe that you will be able to cook something awesome if you stay by the oven to check out for opportunities, you know how to dose all your ingredients and make it tasty enough!
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