Comfort with money

If you are a disciplined investor you will recognize that it is IMPOSSIBLE to buy nothing but bargains every time you enter the market. It is equally impossible to buy at the bottom of the market and sell at the peak of the market for a particular share unless you are especially lucky, and if you are I will guarantee that you cannot keep on repeating that experience. If Grandma has left you $10,000 in her will and you sensibly decide to invest it in the share market (remembering, I trust, that there is no such thing as a short-term investment) you will probably decide that the best thing to do is wait for the market to drop so that your investment will be made with bargains only. Good Luck! Let’s take luck out of the equation and let “the market” and simple arithmetic do the job for you.  Why do some people regard the share market as “risky” for the simple reason that every time there is a drop in the market the headlines scream at the billions of dollars that have been wi...

Risk…the possibility that something bad will happen. To my great chagrin the financial services industry, or at least those who are not prepared to do much thinking on the subject, have no clear concept of what is “risk” and what are its degrees. If you walk across a railroad track there is a risk that the train will run over you and you will be dead. If you walk across a rail crossing and the train is coming in your direction at 80 kilometres an hour and you stay on the track in front of the train there is no “risk” that you will be killed, there is a “certainty”. Risk then includes the possibility that something bad will happen which clearly includes some possibility that nothing bad will happen. Early in my career as a financial planner Macquarie Bank published a handbook which set out to characterise types of risk relating to money and investments (note the difference). I have lost my little book so I’ll try to remember the types of risk they spelled out. Ma...

Two middle aged gentlemen with whom I was acquainted had remarkably different tastes, especially about what they spent their considerable wealth on. One loved driving relatively new luxury European cars and had his annual holiday in the “family” home, which his father had built at Tin Can Bay when all his kids, including my acquaintance, were pre teens. The other spent his money either on stateroom cruises in exotic parts of the world or brief exotic holidays in places where $500 a night for hotel accommodation was regarded as being on the low side. He drove a 12 year old Holden that he had bought second hand. Every time they met up they would discuss their most recent car purchase or their most recent cruise or land based holiday. On each of these occasions they would greet each other with the same “ Jeez I wish I could afford the sort of holiday (sort of car) that you have.” My definition of “afford” is simply being able to meet your financial commitments as and ...

How you spend your money, your discretionary money that is, is a matter of your personal choice but as long as it is YOUR choice then no one should criticise what you spend it on. Having chosen to spend it, that money has gone. You have therefore lost the OPPORTUNITY to do something else with that money. When you can identify chunks of money that you have spent and calculate what income you could be making by investing that money in something else that would earn you “x” dollars, the “x” dollars you do not have is the opportunity cost   of what you spent your money on….honeymoon, deluxe wedding celebration, house, Lamborghini, European holiday, rental property, cellar filled with wine, Melbourne Cup attendance (especially if you live in Camooweal) and the list could go on forever. As long as the money is available and “affordable” (that adjective has a number of meanings) one’s personal choice dominates but that still does not dismiss the FACT that one of the costs as...