How to Recover From a Financial Loss

How to Recover From a Financial Loss

While a financial loss can be devastating, it doesn’t mean that your situation can’t be improved. Sometimes, your loss can even, ironically, spur you on towards future success. Imagine that you lost an important piece, such as a bishop, or even your queen, in a game of chess. You wouldn’t just get up and walk away from the chessboard. You would look at the way your pieces are set up and try to see where you went wrong. Perhaps you need to change your strategy or rearrange your pieces so that you can strengthen your defense. Losing an important piece doesn’t always mean the end of the game. If you regroup, you may still have a chance of winning. In this case, your loss may lead you to become a better player. Setbacks can be a stepping stone to success Remember the proverb, “If at first you don’t succeed, try, try again.” Some of the most famous investors and entrepreneurs followed this advice, and even though they initially failed in their efforts, their determination eventually led to success. For example, Col. Harland Sanders failed at several businesses before, at age 40, he began selling fried chicken at a gas station in Kentucky. He didn’t give up on his efforts to succeed in the food industry. This enterprise eventually became Kentucky Fried Chicken, one of the most famous fast-food chains in the world. You can still turn things around Don’t consider a monetary loss to be the end of your financial world. Use it as a chance to reassess the way you manage your finances and a springboard to becoming... Click for more
Why You Need to Set Realistic Financial Goals

Why You Need to Set Realistic Financial Goals

If you want to be a successful investor, your first step is to create and follow realistic financial goals. Why is this important? When people invest without a particular goal in mind, their investments lack focus and they change strategies frequently. A clear goal keeps you on a definite path and you are less likely to get distracted. In defining your goals, don’t let your parents, boss, or friends dictate your direction. Think about your specific desire, write it down, and then figure out how to get there. Is your goal realistic? Once you’ve decided upon your goal, see if it is realistic. Here’s where it helps to get some outside advice, whether from a friend, family member, or professional advisor. For example, let’s say your goal is to retire at age 55 and you calculate that you’ll need $4 million in savings to achieve the lifestyle you want. You divide that amount of money by the number of years until your desired retirement age. But is this realistic? If you’re 51 today and you earn $100,000 per year, there is no way you can save $1 million a year for the next four years. On the other hand, if you’re 25 with a great income and you can figure out how to save $60,000 every year, you could very possibly reach your $4 million goal if you earn enough to meet your savings target and if you average a 5% return on your money over the next 30 years. Make sure you make a distinction between a realistic goal and a wish. What you can learn about goal-setting... Click for more
How to Strengthen Your Investments by Doubling Your Power

How to Strengthen Your Investments by Doubling Your Power

Here’s a way that can help you strengthen your investments and improve their performance: double your power. What does this mean? When two chess pieces work together on the board, they can create an impenetrable force. Frequently, chess experts follow this method by lining up two pieces that have a similar pattern of moving in order to deliver a “one-two” punch. Here’s a real-life example of how this works. (If you’re not a chess enthusiast, skip ahead to the next paragraph to learn how to deliver a “one-two” punch with your finances.) In 1992, Susan Polgar played Anatoly Karpov and used a pair of white rooks to confront Karpov’s king. Each rook protected the other, while simultaneously presenting the threat of checkmate. Two moves later, White delivered the final blow, adding the queen’s power to an already strong position. By getting her pieces to work together, and using a “one-two” punch, Susan won the game. To watch a two-minute video showing how Susan Polgar used double power to defeat Anatoly Karpov, click here. Strengthen the power of your investments This principle can also apply to investing. Investors sometimes forgo the important tactic of consolidating their forces. Instead of strengthening their more powerful positions, they invest small sums of money here and there, hoping to find something better than what they have. Even worse, they may sell a strong position in order to free up cash to try an unknown possibility. Boost the power of your investments by finding the more successful ones and adding to them. Pairing up your strong pieces by putting more money into your strong investments... Click for more
How to Plan Your Finances Like a Professional Would Plan

How to Plan Your Finances Like a Professional Would Plan

When you plan your finances, be realistic about what you want to achieve and how to go about attaining your goals. Just setting a goal doesn’t guarantee you’ll achieve it. From the outset, you need to be practical and understand the ramifications of your goal. Ask yourself: How achievable is the goal? Do I have the resources to get there? How do I intend to achieve my objective? What’s my plan? Don’t take your queen out too early Make sure not to approach your financial goals in the same way that a sloppy chess player plays a game of chess. When a chess player brings out his queen at the start of the game, before developing an effective strategy, it’s highly doubtful there will be a successful outcome. Chances are, he will lose his queen, the strongest piece, right at the beginning and end up defeated. Similarly, if you tackle your financial goals without a coherent plan or strategy, success will be elusive. Make sure you have backup One of the ways to play chess successfully is to make sure you have pieces to support your more active pieces in the frontline. In the same way, when building your financial plan, be aware that things may not go the way you intend. Markets can be volatile, and also life happens. Think of backup possibilities and be prepared to change your tactics if it becomes necessary. For example, make sure that you have an emergency fund in place to deal with unexpected crises rather than having to dip into your savings. Play like a professional When you create a financial... Click for more
Can Too Much Risk Avoidance Make You Lose Money?

Can Too Much Risk Avoidance Make You Lose Money?

While you don’t want to be a reckless investor, over-zealous attempts at risk avoidance can cause you to lose money. Here’s why. Imagine that your friend invites you to play a game of chess. She is a good chess player, and there is a possibility that she will win. However, there is also a chance that you will win. But you decide that as you don’t want to take the risk of getting beaten, you won’t play at all. What do you gain from this decision to avoid risk altogether? Well, you definitely won’t lose the game. No one will beat you, and you won’t feel a sense of defeat. But you won’t win either. You certainly avoided a potentially uncomfortable position and replaced it with a neutral position – yet in doing so, you gave up the possibility of a pleasant position. How do you know for sure that you will lose? Wouldn’t it be better to at least try? The definition of failure Famous chess grandmaster Garry Kasparov once said: “I think our chances are not looking great today, but the only way to fail for me is just not to try.” His quote does not apply only to the world of chess, but also relates to investing. There is no such thing as an investment that is completely risk free, and some people find this idea extremely frightening. Their fear of losing money, known as “loss aversion,” is great enough to cause them to make poor investment decisions or not to invest their funds at all. Rather than putting their money into something that could potentially... Click for more