Sunday, 11 August 2013

Stop worrying and start protecting yourself. Do what you can do, let go of what you cannot. Overcoming the psychological resistance to action

The world is plagued by problems of all sorts. During your lifetime, chances are that you will go through periods of inflation, deflation, unemployment, rising share prices and stock market crashes. Newspapers report these problems with regularity and it seems that some of them will remain unresolved in the foreseeable future.

Stop worrying and start protecting yourself

At the time of this writing, 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.

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.

Do what you can do, let go of what you cannot 

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.

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.

Overcoming the psychological resistance to action

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 to keep 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 high rate when the price of residential properties begins to fall.

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, unemployment, or any other economic challenge just as another problem to be handled.

For more information about rational living and personal development, I refer you to my book The 10 Principles of Rational Living


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