By Scott Reed
Last week, I was doing my part to stimulate the economy by Christmas shopping. That’s not totally accurate: I was Christmas waiting.
My wife and one of my children were doing the shopping. They would acknowledge me occasionally for consultation on important matters like whether we should pay cash or use the credit card. Although this has little to do with the subject of this column, I have to interject – I use credit cards all the time.
The key to using credit cards is to pay the total amount in full every month, period. No exceptions. It took me a long time to learn that lesson, but it hit home before my 30th birthday and it has made a big difference in my financial life.
Back to the story. I was standing next to the checkout counter hoping to encourage my shopping partners to a faster finish when I saw a sign. It was one of those catch phrases you see on napkins or aprons. It said, “Keep Calm and Carry On.”
At first I thought that it wasn’t as creative as, “I used to be indecisive, now I’m not so sure.” But the more my crew shopped, the more I thought about that saying. It’s not that fancy, but it is good advice. As a matter of fact, it is the main thing that separates the institutional investors from the amateurs.
So much of investing is about being pulled one way when you should go the other. When the economy is in the tank and you are about to lose your job, buy stocks. When we are at full employment and everyone you know has made a killing in the stock market, it’s time to sell. Nothing about that feels right. Your emotions beg you to do the wrong thing when investing your own money.
It is easier to be objective when it is someone else’s money. Investment committees have to make decisions that are important to other people, but those decisions, for the most part, don’t affect them personally. That’s why it is easier for an investment committee to stay the course.
Our stock markets have become volatile over recent years. The volatility is pretty normal after a big correction, but it doesn’t make investors feel very confident. Just when you think you have figured out the markets, they do something else that you didn’t see coming. That’s why it helps so much to have a plan in place. Put down on paper how you plan to invest your money and what you will and won’t allow yourself to do. Don’t do that in the middle of a crisis. Do it when you are calm and thinking reasonably about the future.
The rule is that you can’t do anything that is not written down in your investment policy statement. You can change things in your investment policy, but you can’t do so when you are an emotional wreck because you will make bad decisions. Write it, sign it and date it. Now you have your own investment policy statement that tells you how you are going to invest your assets.
With your IPS in hand, you are ready for the next challenge of investing. Whatever it is, you will want to react to it. In all likelihood you will want to do something harmful to yourself and your family. But now you are able to pull out your IPS and read what you created when you weren’t so emotional.
Out of the blue the answer to your problems will come to you: “Keep Calm and Carry On.”
Scott Reed, CIMA, AIFA is CEO of Hardy Reed in Tupelo. Contact him at firstname.lastname@example.org or (662) 823-4722.