When Important is Not Important
Sam and Sadie have been happily married for over sixty years. A good friend asked Sam the secret of his successful marriage. "Well," Sam declared, "I was in charge of the big issues and Sadie was in charge of the small ones." The friend seemed confused by the answer.
"You see," Sam explained, "Sadie handled the small things, like what cars we drove, where we lived, and where the kids went to school. I dealt with the big issues—politics, the economy, world peace."
In the world of investments, you can be either like Sam or like Sadie. According to financial planner Carl Richards in a recent article in the AAII Journal, it's better to follow Sadie's approach. Instead of agonizing over the fate of Europe, the U.S. economy, and the daily fluctuations of the stock market, Richards believes it is more fitting to concern ourselves with something we at least have control over.
"We [should] start to focus on our personal economy instead of the global economy. Our personal economy becomes the filter for all the noise. Things like Europe, the market and individual stocks drop off our radar. Instead, we focus on information that helps us with one thing we can control: ourselves."
I find that people often worry a lot more about the world economy and market fluctuations rather than their personal spending habits, level of debt, and rate of savings. We can manage our personal finances. The fate of Cyprus lays outside our control.
We should not, of course, be blind to the world around us. Major events do influence how capital markets behave. We are not always good, however, at predicting how major events will play out or their eventual impact. We should be careful about making dramatic changes based on perceptions of a world we can not control. Constructing a portfolio to meet your specific needs and goals over varying market cycles—and sticking to it—is a step in the right direction.
Words of WisdomWhat if everything is an illusion and nothing exists? In that case, I definitely overpaid for my carpet. —Woody Allen