How to Avoid This Surprise Chess Tactic, Which Could Mess up Your Finances

How to Avoid This Surprise Chess Tactic, Which Could Mess up Your Finances

One of the most deadly surprise chess tactics to watch out for in a game is the skewer.

(Click here to watch a short video about the tactic.)

A skewer targets two of your opponent’s pieces that are lined up. Usually, the more valuable of the two pieces flees, allowing the capture of the other one. Very often, this takes place in the form of a surprise attack. If you are extremely vigilant, however, you may be able to prevent this from happening.

The same kind of surprise tactic can derail your finances, throwing them into disarray.

Stop and think

As an investor, you lack the same vantage point that allows chess players to observe every piece on the board. However, in many situations, if you just stop, think, and assess all the possibilities, you may be able to prevent yourself from falling victim to a surprise attack.

Here’s an example:

What would happen if you didn’t have an emergency fund? You have some savings, but they are in long-term investments that you can’t access in a hurry. One day, unexpectedly, your car breaks down and needs a very expensive repair. What do you do? Without an emergency fund, this huge expense is hard for you to bear. You can’t take the money out of your long-term savings as you need it as soon as possible, and you don’t have enough cash in your current account to cover it either.

If you had built an emergency fund gradually, putting a little money aside over the preceding few months and years, you would have been able to cover this repair without feeling it too badly. You have been skewered by your own lack of forethought and the unexpected problem with your car.

Think about the risks

Here’s another easy-to-avoid situation. In plans where employees can buy shares of their own company’s stock, about a third of them choose to do so. But what happens if the company goes bankrupt? These unlucky folks will not only lose their jobs, but their investments will plummet in value. Don’t line up your job (a.k.a. your king) with your savings (a.k.a. your rook). If one gets pushed to the side, you don’t want to lose the other one as well. This is true for startups when employees get paid in stock options, too.

Before making any financial decision, ask yourself what new risks that particular move will create. By using some forethought and thinking carefully about what you’re doing, you can avoid disaster both on the chessboard and off. If you don’t, prepare to be skewered!

To watch a 2-minute video example of the skewer tactic on the chessboard, explained by Grandmaster Susan Polgar, click here.

Douglas Goldstein, co-author of Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing, is an avid chess fan, international investment advisor and Certified Financial Planner.TM