Finance Wanted.

By Jim Farrish

This weekend I am teaching at a conference for individual investors. While talking with them it has become apparent they really don't know what they want when it comes to investing or trading their money. The number one question I am being asked - "is the bottom in?" While that is something to look for off of any correction or downtrend, the key issue is can you define why you have each position in your portfolio?

To put this in better perspective understand the question about the bottom is because of positions held in a portfolio that have been killed. In other words they are holding assets that have declined 20, 30 or 50% in this recent decline. First of all this lends itself to a lack of discipline in position management, but more importantly I am finding that investors really don't know what they want or why they are investing their money. They are choosing positions in their portfolio based on what someone told them or what they heard through the media. The lack a strategy for building their portfolio and as a result take a beating when the markets move lower. Some of the biggest questions are coming from closed end ETFs and closed end mutual funds in the energy sector. They bought the dividend without understanding the risk associated with the investment.

For more than 25 years I have tried to teach, explain and urge investors to first and foremost to define the 'why' of their portfolio before they invest the first dollar. This is the motivation if you will for investing money as well as the guide for how you invest your money. If you know the why building the how becomes much easier. For example let's say that I want to retire in 10 years with income of $100k per year. I am starting with $500k and adding $500 per month in a 401k plan. This would require a 10% return on investment. Thus, the goal is to retire with income of $100k per year. In other words the goal becomes the why, the motivation to investing the money. Now I can build my portfolio accordingly. Knowing why I am investing is just as important as what I invest in.

Successful investing in based on the premise of first knowing what you want from your money prior to investing. Investing for the sake of making money is great, but why and what you will do with it is equally important. Getting caught up in the performance game is dangerous at best. After all the years I have done this I am more convinced than ever that is more important to manage my money than to worry about performance. Performance in fact is a result of managing your money and managing your money is best done by knowing why you are investing. And the answer to that is defining what you want from your investment portfolio.

Of course this isn't the end of the story we now get to determine the strategy of how we will build each position within our portfolio. Of course that is a whole note piece I will have to write. For now take the time to ask yourself - Why am I investing my money? The answer to this question will define what you want from investing.

Jim Farrish
LetsTalkMoneyBlog.com