Sunday, 2 February 2014

Discard anxiety and learn to face problems in the best possible way. Let your financial and philosophical sharpness grow together. Give up unrealistic expectations and concentrate on what's feasible

Most economists agree that increased consumer prices are coming, although nobody can tell precisely when this will happen. If you live on a fixed income, as it is the case of most pensioners, you should view inflation as a cause of a serious concern.

Let your financial and philosophical sharpness grow together

When the media mention that a loss of purchasing power might take place within months, danger is already looming in the horizon. If you do nothing, inflation will catch you unprepared. If you take appropriate measures, that will not be the end of the story either. As soon as inflation is under control, the next problem will come to haunt us, possibly another stock market crash.

Even if you occupy a position of influence, your possibilities of changing society remain minuscule for the simple reason that millions of people out there don't care about what you think and never will. Major changes in History ultimately result from ideas held in high regard, rightly or wrongly, by significant segments of the population. Those beliefs evolve through generations and change very slowly, even in the era of the internet and the global economy.

As an investor, you will be much better off if you realize your impotence to bring fundamental changes to society and stop worrying about it. An effective strategy to help other people, which is by all means a laudable intent, is to focus your efforts on a restricted field where your contribution can really make a difference.

Give up unrealistic expectations and concentrate on what's feasible

Adopting a rational investment philosophy involves giving up unrealistic expectations and concentrating on what is feasible. You cannot prevent inflation or deflation from taking place, but if you play your cards well, you can make money from them. Instead of worrying about the disadvantages of rising or falling prices, why don't you figure out how to use each financial phenomenon for your personal profit?

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.

Exaggerated concerns seldom improve anything

From this perspective, those phenomena are similar to the influenza virus that marks the arrival of winter every year. Exaggerated concerns seldom improve 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?

Economists speculate all the time about next year's rates of unemployment, inflation or deflation. For your personal investment decisions, you don't need to wait until the exact figure is known. On most occasions, knowing the general trend is enough to make rational investment choices.

If newspapers are discussing whether next year's inflation is going to be 6% or 7%, that tells you as much as you need to know. Take swift action and reflect about how to structure your finances to deal with such price increases. Worrying is essentially a waste of time. Although you cannot reshape the world according to your taste, nothing prevents you from taking measures to minimize trouble.

Discard anxiety and learn to face problems in the best possible way: become a rational investor. Your financial and philosophical sharpness will grow together. Your personal effectiveness will increase and you will become more tolerant and self-reliant.

Stop worrying and start taking action

Never place all your savings on a single investment. If you acquire the habit of diversifying your investments amongst different types of assets, chances are that you will be much less troubled. If you purchase shares of solid companies around the world, your portfolio will tend to be less affected by problems in specific countries.

Learning to deal with the world's problems is a better approach than being paralysed by them. Wisdom is the process of learning what a man can achieve and what he should rather let go of. Becoming a rational investor will make you a better human being and help you overcome whatever financial fears the day may bring. 


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