Friday, October 31, 2014

How Much Is Enough?

When I retired in early 2010, I planned to allocate a certain amount of retirement time to trading stocks and equity options. I had worked as a broker during the previous 8 years and it was a relief to now spend time taking care of my own portfolio instead of those of clients. The experience working in the brokerage industry had provided me with a significant education. But I was uncomfortable as I had ethical concerns in that role that I found difficult to resolve. I enjoyed trading as a interest, but set strict prudent parameters for myself. You see, I feel it is important for an investor to understand his goals. A good night's sleep, undisturbed by nightmare investment scenarios, was my primary goal. This means that "capital preservation" was my most important investment objective. During the last recession, I had encountered several clients who should have set a similar goal, but instead had behaved like gamblers, often losing fortunes for no good reason. I believe that a prominant source of this problem is that most often people do not know how to think about money. I believe money is a tool for influencing and partially controlling important aspects of one's life. But to most people, it also has a symbolic value. For example, it can be seen as a measure of one's success in life, a measure of one's self-worth. It can also be seen as a buffer against unforeseen financial dangers. But where one person will take reasonable precautions to protecting his household, another will be consumed with fears of the future and, in the process of running from shadows, will take unreasonable risks in his investments. It is just a matter of perspective. A prudent, but balanced individual will not go immediately to extremes. Some believe you cannot have enough money, just as you cannot be too thin. I believe that you can have too much money and you can be too thin. Acquiring each additional increment of wealth requires risk-taking. Somehow, each investor needs to come to grips with an answer to the question: "how much is enough." If he fails to do this, he will take risks to achieve a level of wealth that he does not need and, as a result, he may lose it all. I have seen this happen several times and it is pathetic, incredibly sad. It is therefore absolutely necessary that the investor decouple his sense of self worth from the value of his assets and focus simply on the utility of those assets in helping him to meet his obligations, needs and wants in life.

"The world is too much with us; late and soon,
Getting and spending, we lay waste our powers..."
William Wordsworth