There are several skills that can make or break our success when it comes to investing.
Most people believe (because it's what we're told and sold by the experts) that if they just max out their 401k (or IRA) everything's going to be ok. Cross your fingers, close your eyes and hope for the best.
Unfortunately this just isn't the case.
The latest research and statics show that expectations for retirement are continuing to be revised downward. As is often the case, the predictions and recommendations of the "experts" are wrong more than they're right.
For example, 90.2% of professional money managers failed to beat their benchmarks according to a recent Financial Times study.
So most people put their trust into the "experts" only to end up paying more in fees (reducing overall ROI) with no guarantees that they'll meet expectations, projected returns or achieve their retirement goals.
You do have choices, but you have to be willing to take personal responsibility for your own financial future.
This is a daunting task when considering how complex the financial markets are. It can be overwhelming because of one problem; there is simply too much information followed by too many opinions.
Who is right? Who should you listen to when its comes to your investing decisions?
The answer? No one.
You have to commit to learning the game, little by little... to embracing the journey of the self directed investor.
When it comes to investing there are 3 critical questions we must be able to answer before taking action:
- What asset(s) should I buy/sell (and why)?
- When should I buy/sell?
- How much should I buy/sell?
Now this may come as a shock but out of the 3 questions above, take a guess which one is the most important?
Its number 3 and the reason has to do not only with money and risk management but also with your personal temperament and emotional makeup (which various person to person).
Unfortunately, the same skills we develop and rely on to succeed as an entrepreneur and marketer often end up making us a terrible investor and money manager.
This one thing I can tell you, the skills it takes to keep and grow money (Ie; get your money working for you instead of you working for your money) are NOT the same skills it takes to make the money in the first place.
In business, we dream big, take bold risks and we "make" things happen through "all out massive action".
Our passion and excitement for success drive us through the hard times and we achieve our goals sometimes through brute force if nothing else. We are rewarded for never giving up and persisting until we finally break through and crack the code.
In investing, when we get overly excited, try to take on too much risk, refuse to cut our losses quickly or "make" things happen faster or sooner than they should, we get scammed, conned, stolen from, enter and exit positions at the wrong time and we lose our money... or worse.
There's two games going on.
- The outer game (what you know, you're knowledge and experience)
- The inner game (your motives and emotions like fear, greed, etc)
My personal conviction is its the inner game that makes or breaks us all.
What am I talking about?
I'm talking about our ability to control our emotions, to recognize our own biases and to execute a well thought out plan consistently and methodically no matter how much chaos and noise is going on in the markets and media around us.
Some examples of external money skills (outer game): attention to detail, financial analysis, accounting skills, healthy skepticism, good contacts, having a rules based system, frugality and money management.
Examples of internal money skills (inner game): patience, emotional self control, willingness to go against the crowd, ability to take action.