hold on to your money
The world market is crashing. It does not matter what our Louis Vuitton-toting registered financial planner says. I read the paper, woman. I know all about the failed uptrend lines. I know about the bear hug. I know how fundamental indicators still remain in a state of flux.
Recession is in the air, and I have never felt so suffocated.
Scurry burdy
For small investors, news such as AIG's decision to divest PhilamLife and its subsidiaries can be a cause for concern. Regular savers who have life insurance and mutual funds with the company cannot help but get nervous. Philam's press releases say that it is well capitalized and that investors should not worry, but when you're a loyal customer expecting the company to give you your pension, pay your family life insurance when you die, or double your money in 8 years like it said it would, you will worry. Who will buy Philam now that AIG is selling it? How will this affect policyholders? Can the company pay its obligations?
How I cope
I don't claim to be a savvy investor, but I not a dumb investor. About one year ago, I started dabbling with more complicated investment instruments such as bonds, equities, etc. I have lost money, sure, but I somehow managed to lessen the blow. Here's how I did it.
1. I have a clear idea of my risk appetite. Before buying shares or locking in funds in the market, I always think of the biggest losses I can stomach if the worst happens. My comfort level is 30% for every investment class. If I invest P200,000, I can lose P60,000 and still smile. If I invest a million, I can lose P300,000 and not go homeless. In the eyes of big investors, I have a very small risk appetite. They are probably right. I'm not a mature investor yet (nor do I have a lot of money to throw around) so I'm entitled to penny-pinching. I am slowly getting used to volatility, though, and in a few years, I should be able to risk more without losing my shirt.
2. A few weeks after the market sneezed, I diversified into bonds, which are now gaining ground. This gain 'averaged down' my losses from riskier investment classes. What would have been a 25% decline in my portfolio is down to 12%. I am looking for other investment classes to go into to further minimize the loss, while waiting for the market to rebound.
3. I focus on the business. By putting my efforts towards what I do best, I slowly earn more investible funds that will eventually strengthen my portfolio. I cannot control the market; I cannot control George Bush. However, I can (to a big extent) control my company's revenue.
4. I stopped relying on my emotions. Too many of us let our feelings affect our investment patterns. This never helps. I learned the hard way that to make my company resilient even in this weak economy, I should stop daydreaming and start being practical.
Case in point: The tempting new office space. You see this week, we were offered bigger office space in the heart of Ortigas. I initially wanted to buy it, because getting our own space meant giving our business a permanent home. But, while we could afford the pricetag, staying in the new office would mean increasing our overhead expenses by 30% to 40%. Add to that the costs of uprooting our operations, and we are talking serious money.
The emotional/overeager idealist in me says that we should grab the place because we are 'losing' money when we rent. But I knew better than to impulsively buy property. I did the math, and here's what I discovered:
If we just invest the money we would use to pay the additional overhead expenses in a an instrument that earns about 12% a year, we would NOT lose money. In fact, we would make more, and also stay liquid.
And finally...
5. I try to stick to my newfound philosophy: Simplify. Liquidity is the goal. Money in the bank is much better than a posh penthouse or a luxury office space. Trappings will just weigh me down. Properties will just force me to have the permanence that I'm not sure I want.
Whenever my impulses push me to seek the endless trappings of the 'high' life, I remind myself that I just want the 'good' life. There's a huge difference.
Recession is in the air, and I have never felt so suffocated.
Scurry burdy
For small investors, news such as AIG's decision to divest PhilamLife and its subsidiaries can be a cause for concern. Regular savers who have life insurance and mutual funds with the company cannot help but get nervous. Philam's press releases say that it is well capitalized and that investors should not worry, but when you're a loyal customer expecting the company to give you your pension, pay your family life insurance when you die, or double your money in 8 years like it said it would, you will worry. Who will buy Philam now that AIG is selling it? How will this affect policyholders? Can the company pay its obligations?
How I cope
I don't claim to be a savvy investor, but I not a dumb investor. About one year ago, I started dabbling with more complicated investment instruments such as bonds, equities, etc. I have lost money, sure, but I somehow managed to lessen the blow. Here's how I did it.
1. I have a clear idea of my risk appetite. Before buying shares or locking in funds in the market, I always think of the biggest losses I can stomach if the worst happens. My comfort level is 30% for every investment class. If I invest P200,000, I can lose P60,000 and still smile. If I invest a million, I can lose P300,000 and not go homeless. In the eyes of big investors, I have a very small risk appetite. They are probably right. I'm not a mature investor yet (nor do I have a lot of money to throw around) so I'm entitled to penny-pinching. I am slowly getting used to volatility, though, and in a few years, I should be able to risk more without losing my shirt.
2. A few weeks after the market sneezed, I diversified into bonds, which are now gaining ground. This gain 'averaged down' my losses from riskier investment classes. What would have been a 25% decline in my portfolio is down to 12%. I am looking for other investment classes to go into to further minimize the loss, while waiting for the market to rebound.
3. I focus on the business. By putting my efforts towards what I do best, I slowly earn more investible funds that will eventually strengthen my portfolio. I cannot control the market; I cannot control George Bush. However, I can (to a big extent) control my company's revenue.
4. I stopped relying on my emotions. Too many of us let our feelings affect our investment patterns. This never helps. I learned the hard way that to make my company resilient even in this weak economy, I should stop daydreaming and start being practical.
Case in point: The tempting new office space. You see this week, we were offered bigger office space in the heart of Ortigas. I initially wanted to buy it, because getting our own space meant giving our business a permanent home. But, while we could afford the pricetag, staying in the new office would mean increasing our overhead expenses by 30% to 40%. Add to that the costs of uprooting our operations, and we are talking serious money.
The emotional/overeager idealist in me says that we should grab the place because we are 'losing' money when we rent. But I knew better than to impulsively buy property. I did the math, and here's what I discovered:
If we just invest the money we would use to pay the additional overhead expenses in a an instrument that earns about 12% a year, we would NOT lose money. In fact, we would make more, and also stay liquid.
And finally...
5. I try to stick to my newfound philosophy: Simplify. Liquidity is the goal. Money in the bank is much better than a posh penthouse or a luxury office space. Trappings will just weigh me down. Properties will just force me to have the permanence that I'm not sure I want.
Whenever my impulses push me to seek the endless trappings of the 'high' life, I remind myself that I just want the 'good' life. There's a huge difference.
posted by Ingrid C. at 4:48 PM
1 Comments:
I wish I was as patient with finances as I am with people ☺
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