Many people are already doing this, either directly or indirectly. Maybe they're doing it but they don't know they're doing it. The secret of how to take the nervousness out of investing is to make the conscious decision to allocate your investments in a strategic fashion.
For example, I'm a Balanced investor. What does that mean, for me? That means that my asset allocation is 60% equities (or stocks) and 40% fixed income (or investments with a stated rate of return). I stick to this asset allocation through good markets and through bad markets. If my equities become 65% of my portfolio then I take 5% out and allocate it to the fixed income component, and vis versa. This keeps me disciplined in my approach with my investment portfolio. It also does something else ~ it keeps me disciplined in the 'sell high' and 'buy low' strategy that tends to bring about successful investing.
Currently earning an income, I may not be so worried about the fluctuations of the market as I will be when I am retired. Without income replacement it is challenging to watch those dips in the market but my strategy of keeping 40% in fixed income will help me. While equities are out of favour the less volatile fixed income component of my portfolio can become my major source of cash flow. This way I can wait for the equity markets to return and I will not be forced to sell them while they are at their all time bottom price levels.
Having my portfolio balanced, from an asset allocation perspective, is the first step in negotiating the waves of the stock market.
Tuesday, October 26, 2010
Friday, October 1, 2010
Teaching Kids About Money ~ I'm not kidding!!!
It's interesting that I have been hearing a lot about how to teach kids about money. I know that when I counsel couples about budgeting I usually begin with how they think about money and what it means to them. Most of the psychological issues with money stem from our up-bringing. Typically, one person in the couple is the 'perceived' spender. I say 'percieved' because they may spend more than their partners but they can also be good savers and have a very disciplined saving and spending philosophy.
So, as parents or grandparents what can we do to ensure that we are instilling the "good" philosophies about spending money. Keep in mind that money is just paper. What we want to teach our children is the work ethic, the sense of constraint and the freedom of enjoyment in a healthy balance. That's the real lessons to be learnt.
Typically, we can start our very young off with the piggy bank and teach them how to save and how the savings add up, if not spent. I think it is important to let children spend their money, if they wish, so that lessons can be learnt about how things cost money and how we can make conscious decisions as to whether we want to budget for the bigger ticket items or whether some smaller ones are justifiable along the way. Letting children make their own decisions is a good one...but some guidance along the way is also important. "You sure you want to spend that money on a new toy instead of saving a little more for that teddy bear that you saw at the store with Grandma?" Remember, kids have short memories, especially when something immediately gratifying can be right in front of them. Allowing them to make their own choices will also give them a certain amount of independence and neither choice should be deemed a 'good' versus a 'bad' choice. Children must learn on their own, within limits.
Generally, after the age of about 5, it would be a good idea to set up a spending and a savings plan. This shows kids that they can still make the independent choice to spend but saving money is also important. Perhaps, some small chores can be incorporated, just enough to ensure that they understand that money must be earned. Of course, light chores are recommended at this age. You don't want an over-stressed child..but rather, something that is befitting their age and capabilities.
Once children are in their mid-teens you may want to add a little 'credit' to the situation. Give them a leeway of about $50 to 'over spend' with the intention of paying it back within a reasonable time frame. This will teach them that they can have that immediate gratification but the work must follow and payments must be made. You can even have the payments in increments. It is important, however, that you child gets 'paid' even though they owe you money because they may chose to only repay half instead of the whole 'pay-check' and this also helps them to manage their funds in a responsible way. Perhaps minimum payments should be understood and a 'credit' document be written up for them so they know their limits and expectations.
Once your children have entered their 20's they may well be ahead of their peers and they will make financially healthy decisions with their childhood experiences and your guidance, behind them.
So, as parents or grandparents what can we do to ensure that we are instilling the "good" philosophies about spending money. Keep in mind that money is just paper. What we want to teach our children is the work ethic, the sense of constraint and the freedom of enjoyment in a healthy balance. That's the real lessons to be learnt.
Typically, we can start our very young off with the piggy bank and teach them how to save and how the savings add up, if not spent. I think it is important to let children spend their money, if they wish, so that lessons can be learnt about how things cost money and how we can make conscious decisions as to whether we want to budget for the bigger ticket items or whether some smaller ones are justifiable along the way. Letting children make their own decisions is a good one...but some guidance along the way is also important. "You sure you want to spend that money on a new toy instead of saving a little more for that teddy bear that you saw at the store with Grandma?" Remember, kids have short memories, especially when something immediately gratifying can be right in front of them. Allowing them to make their own choices will also give them a certain amount of independence and neither choice should be deemed a 'good' versus a 'bad' choice. Children must learn on their own, within limits.
Generally, after the age of about 5, it would be a good idea to set up a spending and a savings plan. This shows kids that they can still make the independent choice to spend but saving money is also important. Perhaps, some small chores can be incorporated, just enough to ensure that they understand that money must be earned. Of course, light chores are recommended at this age. You don't want an over-stressed child..but rather, something that is befitting their age and capabilities.
Once children are in their mid-teens you may want to add a little 'credit' to the situation. Give them a leeway of about $50 to 'over spend' with the intention of paying it back within a reasonable time frame. This will teach them that they can have that immediate gratification but the work must follow and payments must be made. You can even have the payments in increments. It is important, however, that you child gets 'paid' even though they owe you money because they may chose to only repay half instead of the whole 'pay-check' and this also helps them to manage their funds in a responsible way. Perhaps minimum payments should be understood and a 'credit' document be written up for them so they know their limits and expectations.
Once your children have entered their 20's they may well be ahead of their peers and they will make financially healthy decisions with their childhood experiences and your guidance, behind them.
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