Is Your speculation Strategy Personalised?

Knowledge of investments isn't everything

The availability of speculation news and data has been addition over time. This has led to an revising in most people's understanding of general speculation concepts. It has created the opportunity for many to choose to carry on their own financial affairs.

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Knowing "where" to spend your money is an leading part of the financial administration equation. However, by itself, it's far from allembracing in terms of an speculation strategy.

Consider the Storm Financial model of advice.

They used an eminently sensible and highly diversified speculation coming for managing the underlying investments for their clients. Their speculation strategy at this level was not the cause of the problems their clients would ultimately experience. Plainly knowing "where" to spend their clients' funds was not sufficient to save their clients from financial disaster.

They failed to adequately address:

• The size of the speculation exposure relative to their client's lifetime capital accumulation whole (i.e. The examine of "how much" to invest), and
• How to carry on the entry risk for their clients (i.e. The examine of "when" to invest).

This part of their speculation strategy was not only grossly naïve, it failed to adequately address the personal circumstances of each investor.

The strategic decisions they applied seemed to be based on:

1. "how much?" = as much you can borrow, and
2. "when?" = as soon as possible.

Apparently, this strategy was applied regardless of whether the client was a young collector or an elderly retiree.

How personalised is your speculation strategy?

Many investors confuse personalisation of an speculation strategy with choices at the specific speculation level (e.g. I prefer Bhp over Rio Tinto, or Australian Shares over International Shares). While this is a form of personalisation, it commonly doesn't add any long term (risk adjusted) value. In fact, personalisation at this level commonly has a long term cost.

It may help to support a client though, or convince a Diy investor to continue with their coming over other (more generic) alternatives.

True personalisation of an speculation strategy is at the broader level of managing speculation risk exposure over time. Arguably, this will have a much greater impact on your long term wealth than a strategy that focuses purely on your specific investments.

The "default" speculation strategy

The natural speculation strategy for most households is driven by the availability and timing of surplus cash.

Generally, households tend to create more savings in the latter years of their working lives than the earlier years. It is not uncommon for households to spend over ¾ of their lifetime capital accumulation within 10 years of retirement. In the years prior to this, surpluses are used to cut mortgages, fund school fees and buy lifestyle assets such as cars, boats, renovations, etc.

The dilemma for many who unwittingly apply this "default" strategy is that they secure most of their speculation exposure over a relatively short speculation horizon. If these acquisitions happened to be at the end of a cyclical bull market, it could have quite catastrophic implications.

On the other hand, if you were lucky sufficient for your pre-retirement years to coincide with a cyclical bear market, you could end up acquiring a lot more store exposure than you would have under more optimistic conditions. The challenge for these investors is to recognise their good fortune. Many fail to do this and shy away from investing during declining markets.

Your speculation strategy shouldn't rely on luck

An speculation strategy that may not differentiate at the specific speculation level but sets a clear and personalised strategy for managing your speculation exposure over time is much better than one that differentiates at the specific speculation level but ignores the bigger picture.

A smart speculation strategy considers much more than the speculation of your current capital. It takes into inventory your projected savings capacity, the timing of these savings and your risk parameters to build a strategy that reduces the element of luck and focuses on giving you the best opportunity of achieving your objectives.

While this coming requires more endeavor (and knowledge), the payoff of a personalised speculation strategy is to shift the odds in your favour.

Is Your speculation Strategy Personalised?

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