Carl Richards is a certified financial planner in Park City, Utah, and is the director of investor education at BAM Advisor Services. His book, “The Behavior Gap,” was published in early 2012. His special skill is taking complex ideas and using “cocktail napkin sketches” to explain them in a simple way. You can find his sketches on his website at www.behaviorgap.com.
In May of 2012, Carl published the sketch below as part of an article for the NY Times on the topic of asking better questions. It’s easy for us to get lost in the details of investing because there are so many moving parts to the economy and the stock market. But Carl rightly points out that you don’t have to have all the answers. In fact, you don’t even need to pay attention to the ups and downs of the stock market. You can do surprisingly well as an investor if you just discipline yourself to make a plan, and then keep it updated once per year.
http://bit.ly/ZRXlVA.
So what does he mean by asking better questions? He means asking the kinds of questions that are relevant to your specific investing circumstances. Put another way, this means paying attention to context. For example, instead of asking if gold is going to go up or down, a better question might be “should I own some gold in my portfolio?”
Or instead of worrying about what’s happening in Cyprus or Greece, maybe a better worry would be “is my strategic investment plan up to date, or do I need to do some rebalancing?” By reframing your investment questions in the context of how they affect your overall strategy, you can accomplish two good things. First, you can save time, energy, and worry by not sweating the details of what’s going on in the market. Those are things that you can’t control.
And second, you can keep your plan current and properly balanced by asking yourself questions like “does the banking crisis in Cyprus have any impact on my strategic plan?” In most cases, the answer will be no. But when something significant happens, such as a high likelihood of a new recession starting, you will be ready because your plan includes the steps you should take to deal with it.
To read the full Carl Richards article, click here.