“I want to invest but it’s complicated, time-consuming and boring…”
This is one of the most frequent answer we receive when asking people why they haven’t invested yet. It concludes that the act of investing is so complex, that it’s reserved (or should be) to just a specific group of people that have actively studied the topic (via university, work, self-interest).
While this is an interesting thought, we tend to disagree. While finding the right financial product and understanding the difference in financial assets is not straightforward, the simple act of deciding to invest and what to pay attention for actually follows fairly logical rules (once you are aware of them!)
We have all, in some way or the other, come across those basic investment principles during one of our favorite lockdown hobbies: watching TV series.
Let’s have a look at some common lessons most of us have seen, probably without even noticing:
1. The Simpsons: Always afford your investments
In one episode (Episode 17, Season 5 for the real fans out here), Bart receives an elephant as a prize for calling in to a radio station. While it appears to be a fun gift, the maintenance costs of “Stampy” the elephant are so considerable that Homer has no other choice than deciding to let the animal go. After failing to sell it, he agrees to give it away to a shelter.
Lesson here is to always afford your investments, with the investment here being the daily cost of the elephant. You shouldn’t treat your investment account like an ATM, resolving for your short-term cash needs. Only invest the money you will not immediately need, so you don't have to sell your elephant. This is why we always advice you to have an emergency buffer in a bank account.
On a side note, if you buy a security, make sure it can be sold later!
2. Breaking Bad: Always manage your risk
You as well were a big fan of Walter White aka Hal from Malcolm in the Middle ? Well he made, at least in the serie, enough money than he’d ever need by producing and selling drugs. His issue was that he could simply not stop doing it, although he was aware it would end up badly.
He let his initial investment goals - to get money for his cancer treatment - fade away and got tempted into going for higher returns. This is called being greedy. It's fine to be greedy, but if you go for higher return, remember that you will bear much higher risk as well!
Bottom line here is, that if you are far ahead of your financial goals (i.e. your investments have better performed than expected), then you should diversify your portfolio with more conservative financial products (i.e. bonds) to protect what you have.
This lesson is (unfortunately) applicable to the market crash we saw over the last few weeks. As an investor in the last couple of years, you may have been happy with double digits performance on global equity-markets. However, as the markets were getting hotter, only very few started replacing some of their stocks with bonds in their portfolio. While this harmed short-term return, it for sure lowered the impact from the recent decrease.
3. Game of Thrones: Don’t believe gurus
We all know what happened once Stannis Baratheon blindly believed in Melisandre’s prophecies made from ashes and fire. In a field such as investing, where so many people claim to be market experts, this is even more true. Particularly in the current volatile market environment, so called market gurus try to convince you that we have reached the lowest point or claim to know when we will hit the bottom, so you can buy the dip. Fact is no-one really knows. The ones that say so, are just guessing and trying to benefit from people's investments hesitations and fears.
As an investor, whatever your expereince, you should always try to stay away from those so-called experts and just keep your long-time horizon in mind. What matters, is to be in the markets when they go up again, even if they have to fall a bit before.
By the way, you felt as well that the end of growing stock markets was like the end of Game of Thrones? Everyone knew it would come one day, but we all wanted to have a bit more of it before it ended.
4. How I met your Mother:
If you’re sad, stop being sad and be awesome instead
Yes market crashed heavily since March 15th. Your investments lost value as well? Don’t be sad, until you have actually sold your holdings, you haven’t actually recorded a loss (nor profit). So, sit tight and wait until courses will rebound, which they always will.
If you have some additional money you want to invest, that’s awesome, low market are the best opportunity to benefit from long-term positive evolution of markets. True story!
Panic-selling and -buying are the most irrational although most common behavioural patterns of retail investors. So try to overcome your fears and stick to your initial long-term investment plan you had made for yourself!
So did you recognize some of the investment rules?
If not, then pay attention next time you open your Netflix, Apple TV or Amazon Prime, as in almost every series you can find similar examples!
We hope this gave you some confidence that you too can take care of your finances yourself 😊
Sometimes we think we have to go to a financial advisor, when the answers to our questions are right in front of our nose and you have a free app (Say, QUIN!) to help you make decisions.
Have a great weeke and more importantly: stay healthy!