This is a guest post by Robert, who lives in Calgary and works as a financial adviser. He is married, has three kids and plans to retire at age 35. Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.
Learning to invest takes time and experience. When I started investing in stocks, I felt like a kid in a candy shop. Actually, for that analogy to work, it would have to be a candy shop where some of the candy is spicy, some is sour, some explodes and only the remainder is any good. I was faced with thousands of stocks I could buy, but how to decide? So I chose a strategy at random (momentum), mis-applied it, and had mixed results. As I read about and practiced investing, I realized that there are many strategies that can all be successful. How could I choose one, or could I combine various strategies?
There was still one element missing. Underlying my choice of strategy lay my purpose for investing. Early on, I had very little idea of my purpose. I am a financial advisor, and that’s what we do: we invest. Obviously, I wanted gains, but results were hit-and-miss as I varied my approach and invested only haphazardly. When I determined that I was investing for early retirement, in order to leave my job and become a teacher in Hong Kong, my purpose became clear and the most effective strategy for my situation became obvious. Having and keeping in mind a purpose made me a much more successful investor.
Saving and investing has never felt like a sacrifice to me. I’ve never had to give up buying something I wanted so that I could invest. The purpose behind my investments, my goal to retire at age 35, informs each decision. I could go skiing, or I could retire earlier; I could buy a new car, or I could buy a used car and move to Hong Kong sooner; I could buy a flat-screen TV, or I could start teacher training sooner. As Roy Disney, Walt’s brother, said: “When your values are clear, decisions become simple.”
As I hinted earlier, decisions about potential investments are almost limitless. Not only are there thousands of common stocks, there are also preferred shares, bonds, real estate and others. Given that I want to replace my earned income with passive income, any investment that doesn’t produce cash flow is unsuitable for my situation. That filters out a majority of the options and simplifies my decisions greatly. I don’t need to know everything about every type of investment, and I don’t need to be informed about the prospects of every sector of the economy. I can focus my time and attention on a couple dozen companies at a time, looking to invest in the most promising, while ignoring everything else.
Autumn 2008 was a shock to me. I had never experienced a market crash before, and I was shaken by it. I was fortunate to have someone older and wiser, my father, to put things in perspective and show me the benefit of remaining optimistic. I realized that, despite the drop in market value of my shares, the dividends continued to be paid. Because I was so focused on my goal of accumulating dividend income, I didn’t panic. I found opportunities (high yields due to irrationally low share prices) to take advantage of in this difficult time. In hindsight, I still can’t tell if I was smart or lucky, but I was able to act because of the grounding provided by my purpose.
Having a clear goal keeps me motivated, focused and disciplined. The purpose behind my investment strategy increases my likelihood of success, just as straying from it has usually been a mistake. Are you clear about your purpose? How does your purpose influence your choices?