Tuesday, 17 November 2009

Stop worrying, take action, and start making money (Part 2 of 3)


Achieving a positive result in your bank account will allow you to devote your gains to helping others, if that is your wish. For each disruptive event, there is an investment strategy that can help you make a profit. Rising share prices represent the easiest situation to deal with because most people can figure out that there is plenty of money to be made if you borrow at 6% interest and invest at 12% return.

What makes rational investment difficult is our psychological resistance to letting go of worry, recognizing past mistakes, and taking practical action. In addition, a wise man must accept that an investment method that proves successful in one environment frequently becomes unsuitable when the context changes.

Real estate and gold coins may be great investments during inflationary periods, but tend to be lousy places for your money when the curve turns and prices begin to fall. You certainly don't want to be caught with a huge mortgage at a fixed rate of 8% when the price of residential properties has fallen by 20% and you can borrow money at 3%.

It is up to you in each case to take sensible measures to profit from the situation or, at least, to minimize its negative consequences. As individuals, our best strategy consists of letting go of anxiety and viewing inflation, deflation, or unemployment just as problems to be handled.

From this perspective, those phenomena are similar to the influenza virus that marks the arrival of winter every year. Exaggerated concern seldom improves anything. Instead, individuals should identify the path that minimizes trouble and, if possible, allows to profit from it.

Whenever you hear that inflation or deflation are coming, ask yourself how you can structure your finances in order to benefit from the situation. Can you link your income to a product whose price is likely to increase or decrease at the same pace as the overall economy? Can you reduce the amount of cash that you require to live and invest the remainder in assets that will profit from upcoming economic changes?

To be continued in Part 3

[Text: http://johnvespasian.blogspot.com]

[Image by anna carol under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]

Stop worrying, take action, and start making money (Part 2 of 3)


Achieving a positive result in your bank account will allow you to devote your gains to helping others, if that is your wish. For each disruptive event, there is an investment strategy that can help you make a profit. Rising share prices represent the easiest situation to deal with because most people can figure out that there is plenty of money to be made if you borrow at 6% interest and invest at 12% return.

What makes rational investment difficult is our psychological resistance to letting go of worry, recognizing past mistakes, and taking practical action. In addition, a wise man must accept that an investment method that proves successful in one environment frequently becomes unsuitable when the context changes.

Real estate and gold coins may be great investments during inflationary periods, but tend to be lousy places for your money when the curve turns and prices begin to fall. You certainly don't want to be caught with a huge mortgage at a fixed rate of 8% when the price of residential properties has fallen by 20% and you can borrow money at 3%.

It is up to you in each case to take sensible measures to profit from the situation or, at least, to minimize its negative consequences. As individuals, our best strategy consists of letting go of anxiety and viewing inflation, deflation, or unemployment just as problems to be handled.

From this perspective, those phenomena are similar to the influenza virus that marks the arrival of winter every year. Exaggerated concern seldom improves anything. Instead, individuals should identify the path that minimizes trouble and, if possible, allows to profit from it.

Whenever you hear that inflation or deflation are coming, ask yourself how you can structure your finances in order to benefit from the situation. Can you link your income to a product whose price is likely to increase or decrease at the same pace as the overall economy? Can you reduce the amount of cash that you require to live and invest the remainder in assets that will profit from upcoming economic changes?

To be continued in Part 3

[Text: http://johnvespasian.blogspot.com]

[Image by anna carol under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]