You as Chief Investment Officer

By Bigg Success Staff
09-26-08

Bigg Success with Money

 

There’s one thing you should know about your money – no one will watch over it better than you. So you must take control of your money and your investments.

Now you may be thinking, “I don’t understand money.”

Well, the cold, hard truth is that you better learn the basics because otherwise you will find people who take your money without giving you the returns you deserve.
 
You may be saying, “I don’t have time to manage my investments.”

There are ways to compensate for that, but you need to understand that being entirely “hands-off” increases your risk of undesirable net returns.

We dug up a great article from Money, written by Jason Zweig. It’s an interview with William Sharpe, the dean of financial markets. Sharpe is revered in academic financial circles, winning a Nobel Prize, for his revolutionary work on market principles.

Sharpe reduces all of his knowledge into 4 key principles of investing:

#1 – Diversify
Owning assets that represent the entire market gives you the best return given your risk.

#2 – Economize
Just as you would with any other outlay, look for the lowest cost way to manage your money and conduct transactions, without sacrificing quality.

#3 – Personalize
Tilt your portfolio toward your unique circumstances, thinking about risks you have outside financial assets.

#4 – Contextualize
Anytime you’re thinking of straying from just buying the market, think again. Make sure you can justify the reasons behind your action.

Putting it into practice

You can use these four key principles to guide you as you make investment decisions. Let’s look at a simple way to put them into practice:

• Buy shares in a mutual fund that targets a specific retirement date.
• Make it a no-load fund with low expenses.

• Buy additional shares in mutual funds that target assets where you have significant exposure. For example, if you have a long commute, you can hedge by investing in stocks that will profit from high gas prices.

• Don’t stray. When you’re thinking of buying a stock you just got a “hot tip” on, think again and ask yourself why you’re buying. Don’t sell just because the market falls. Stick with your plan.  

There are other ways to execute Sharpe’s principles. However, this is the simplest way to do it, especially if you don’t have much time to manage your investments or you don’t understand investing that well.

Just don’t forget – you are the Chief Investment Officer for your organization. Ultimately, you have to take responsibility for how well your portfolio performs. For most of us, it’s best to outsource and inspect – make sure your chosen managers are performing well. If not, find one that will. Your future depends on it!

Hear today’s lesson and laugh on The Bigg Success Show

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(Image by woodsy)