Thursday, February 24, 2005

Goal Orientation

Naturally the flaws and instabilities inherent in the global pensions & retirement funds industry are not an ideal motivatory force, as they are steeped in negativity and and profoundly goal oriented.
To take a mre goal based approach, one finds a number of motivations for engaging on an investment path over an anuity path:

  • To invest for yourself is to take control of your affairs, "be your own man" or woman as the case may be.
  • To maximise the benefits available.
  • To spread the risk further afield.
  • To take little ol' you global, become reliant on the planetrary economy over a regional economy.
  • To embark on a path rich in a "sense of self achievement"

The founding principle for any investment strategy is its goals and objectives. What is it you are trying to achieve, why are you engaging in these activities?

It becomes imperative to set out the fundamental parameters of your strategy. How much risk to take on, and how best to manage that risk. Where are you going to channel your investment funds, and how do you propose to manage them once you have committed.

Commitment becomes the imperative at this juncture. How loyal are you and where does your loyalty lie? Do you channel funds into a particular share or instrument and stick with it come hell or high water, or do you behavie in a more fickle manner, shifting to safer waters in tough times?

Naturally this can result in higher returns, but it is also associated with higher risks. So we face a tradeoff.

Primarily you must know what you are doing. Lay down the rules. Remember the rules can be re-addressed if need be. You are in control answerable only to yourself, nobody likes an indecisive leader, everyone resents a lack of vision. So create the vision, be decisive and set out the rules governing your chosen activities.

Wednesday, February 23, 2005

Investment Motivation

With pension funds and national social security mechanisms under threat from the overstresses wrought by demographic changes, it is in the interests of individuals to take control of their own pension preparations.
Gone are the days when one could simply channel a small amount every week into a pension scheme in the certain knowledge that when they reached 60 or 65 years of age they would be able to sit back and reap the rewards. Now there is talk of upping that toi 70 or 72, reducing the payout and increasing the weekly amount.
Effectively returns have been wiped out. The questions arise:
If the money is invested, why are you relying on new member subscriptions to payout older members? Why not utilise the return on the investments and the principles?
It can be confusing, but it certainly is begining to look like a bit of a con.
So now we are in an unprecedented situation of having a population whose only chance of getting some form of return later in life is to build it themselves now, instead of "hiring" someone else to build it up for them.
The only way to do this is to invest wisely and widely, and look forward to decent returns. The individual must become versed in the ways and mores of the stock exchange, the intricacies of the money market and the peculiarities of the property market. Bolder individuals will no doubt enter the commodities market, and others will reach out to a global market place in the hope of minimising risk and maximising returns.
In the past the risk to the individual would have been the collapse of the chosen pension scheme. Now that risk is greater. As the market comes under pressure, the chances of individual schemes collapsing is heightened. This certainly creates a strong reason for individuals to take care, and to prepare for their future financial stability. Naturally, investing for yourself will not remove risk altogether. What it will do is alleviate the pressure. By investing your money yourself you are seeking to spread the risk, no longer having all "eggs in one basket".
Managing risk is a major factor of consideration in handling your own investment project. It is what motivates one to get into the activity in the first place.
With the pension industry bleeting about the demise of the industry, one is not really filled with confidence about the ability of the existing players in that industrey to handle the investments they are required to handle.
Perhaps we are all capable of managing the risk for our own futures ourselves. The technology required for millions of individual players certainly is in place already. Gone are the days when only large instututional players had access on behalf of the millions.
Managing your own risk is part and parcel of taking greater responsibility for your life, "seizing the bull by the horns". As more and more individuals do this the market becomes less prone to risk, as the reliance on larger "powerful" players is lessened, meaning if a single player collapses, the effect on the market as a whole will be lessened by the huge cushion of other players.
With a market of individual as opposed to institutional investors, the dominant risk to the wise investor is shifted away from a single corporate collapse risk towards a less likely national economic collapse risk.
Certainly the motivation exists, but the question is "how do I?"