For two days week we had been talking about where Risk fits in our day to day financial decision points, and I have been adding in examples of Risky Business in my life, today (finally) we wrap this whole thing up.
When to Sell?
Yup this one is the big risky one that, I can assure you, I have no idea of when the best time to sell a security is, blind luck has been my best methodology. Most of my “great” financial decisions have been forced upon me (i.e. I needed to sell to get the money in question), so deciding that a security should be sold is something I am not very good at prognosticating.
I have read many books who state unequivocally that if your investment decisions are made emotionally, you will lose in the long run. Going with your “gut” is a dangerous game to play in poker and also in investing, the danger is that if your “gut” is right once, you may rely on it far too much in the future.
Take your profits is the best methodology I have heard (e.g. re-balance your portfolio) in the world of investing. If your portfolio has one area that is doing great, maybe it is time to take your profits and lock them in, instead of “letting it ride”? Maybe you are very risk averse like me (i.e. burned so many times, I have very little nerve left), if that is the case taking your profits, when you see them might be your best decision point.
Am I espousing a specific investment methodology? No, my regular readers know me better than that, you need to find a methodology that fits your needs and I am NOT in any way shape or form advising you on what to buy, what to sell and when to do either, I am simply pointing out in my case, “Take the Money” has worked. I’ll let the REAL investment blogs talk about that kind of stuff.
The risks in this scenario is obvious, take your money now, or will you have more later?
RRSP or Mortgage?
Is this a risk area? That’s a good question, I don’t think it is a high risk area, unless you are doing something whacky like the Smith Manoeuvre or something like that, if you do either of these (pay down mortgage or build up RRSP), you are doing OK.
I have seen a few different models done about the optimal model for paying down debt/mortgage and RRSP contributions, but I am very debt averse right now, and also am in a relatively stable pension situation, so my decision has been to attack debt as much as possible (with a little success).
The risk again comes down to present money value vs. possible future gains. Get a plan for how you want to deal with it and then stick to it.
So What About Risk?
As we have seen the past few days, risk comes into most major (and a lot of minor) financial decisions but you need to weigh risk against the benefits and make your decision in a calm and rational manner.
Analyze the risks, weigh them in your decision, and you should do just fine.