For a while we have been talking about where Risk fits in our day to day financial decision points. I have been adding in examples of Risky Business in my life.
When to Sell?
This is the big risky one. I have no idea when the best time to sell a security is. Blind luck has been my best method. Most of my “great” financial decisions have been forced upon me. I needed to sell to get the money in question, so I am not very good at prognosticating when a security should be sold.
I have read many books that state unequivocally that if your investment decisions are made emotionally, you will lose eventually. 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 will rely too much on it.
Take your profits is the best way I have heard (e.g. re-balance your portfolio) in 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 method? No, my regular readers know me better than that. You need to find a method that fits your needs, and I am NOT advising you on what to buy, what to sell, or when to do either. I am simply pointing out that, 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?
TFSA, 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 wacky like the Smith Manoeuvre or something like that, if you do either of these (pay down the mortgage or build up RRSP), you are doing OK. Now with the TFSA, maybe you should maximize there first?
I have seen a few different models of the ideal model for paying down debt/mortgage and RRSP contributions. Still, I am very debt averse right now and also am in a relatively stable pension situation, so I have decided to attack debt as much as possible (with a bit of success).
Again, the risk comes down to present money value vs. possible future gains. Make a plan for how you want to deal with it and then stick to it.
So What About Risk?
As we have seen over the past few days, risk is involved in most major (and many minor) financial decisions, but you need to weigh the risks against the benefits and make your decision calmly and rationally.
Analyze the risks, weigh them in your decision, and you should do just fine.
