“Every pawn is a potential queen,” said James Mason, an Irish chess player who died about 100 years ago. Even though pawns can only move in one direction, their strength is in their potential. Mason understood a critical fact in both chess and investing: Care for your smallest assets, since they can grow amazingly.
Pawns, often considered the simplest pieces in the game, Mason noted, had the potential to grow into powerful players if used properly. While the bishop and the knight are powerful pieces, you only have two of each. The overwhelming majority of your chess pieces are simple pawns. Likewise, a small investment portfolio can dominate the board if handled properly.
Consider this actual story: “I figure that I need to make between 15% and 20%,” a client told me recently. When I asked him why, he did not really have a clear answer. Rather, he simply felt that these double-digit returns sounded good and would certainly give him boasting rights for his friends and family. This man didn’t realize that high returns weren’t the only goal of investing. While sizable profits are nice, proper financial planning takes note of your particular circumstances, goals and risk tolerance, and finds investments that fit your particular needs. Sometimes, the best investment may be a pawn: a money market.
Don’t just concentrate on flashy investments
While trying to achieve 20% returns could increase your bottom line, consider what else it can do to your portfolio. When putting together your financial plan, think like a chess master: avoid putting your pieces in a dangerous position, and let them work to the best of their ability. Proper planning can turn your pawn into a queen; and planning your investments properly can let you live like a queen.
Find out more about the importance of planning here.