How to apply investment principles to your own life in 2019
December 20, 2018
When it comes to investment principles, you probably think of your job as an institutional investor or a pension plan manager. Occasionally, you may think of your own retirement portfolio. But do you ever think about applying these principles to yourself? As the new year comes around, I urge you to consider thinking of yourself as you’d think about a portfolio you manage.
Here are five suggestions for how you can apply investment principles to your own life to become richer down the road
Just like a pension plan, focus your personal capital on long-term return. Imagine where you want to be sitting in 10, 20 or 30 years. It’s easy to get caught up with short-term issues like lower returns and market volatility. But we all know that we shouldn’t make decisions based on the short term. Whatever choices you make today will help dictate where you end up years from now — in both investing and life.
I encourage you to think about where you want to be in the long term and determine if there are any short-term changes you need to make to help get you there. I often find myself picturing where I want to be and then working backwards to create the steps today that will help me achieve my long-term goals. Sometimes it’s worth the short-term pain for the long-term gain.
Don’t put all your eggs in one basket. You wouldn’t invest everything in one asset or asset class for a pension plan and the same logic applies to your own life. Think about where the bulk of your time and energy is invested now. Do you wish you could devote more time to taking courses, going to the gym, spending time with friends and family or volunteering?
If you are going to have a sustainable life in the long term, it’s important to be investing your time in different areas. This will help ensure you have balance, so that if something goes sideways in one area, you have other fulfilling parts of your life to fall back on while you readjust.
Expect volatility — and learn to live with it
Ups and downs are inevitable, and we’ve certainly seen that in the markets in 2018. Maybe a project doesn’t go as smoothly as you’d hoped, or you have a setback in a relationship. It makes it that much easier to weather a storm if you learn to expect some uncertainty, and know that when there are downs, there will also be ups.
Providing investment advice to pension plans or investors is about creating a plan for the long term and sticking it out or adjusting it gently over time. The most successful plans don’t pull out or change the course dramatically when things go south. They ride out the lows, keeping the long term in mind.
Just like pension plan management is all about the balance between pension goals and risk-tolerance, you also need to be realistic with yourself about your goals. If you find it difficult to commit to a fitness routine, try signing up for a class to motivate you to show up, or find a buddy that will drag you along with them. Or if you know that you don’t have time to take a course, don’t commit to something that won’t work for you in the long run. Set smaller, more realistic goals, like reading a book in the area you’re interested in. If you make goals that aren’t realistic for you, you can get discouraged quickly.
Practice good governance
Canadian pension plan governance is the envy of the world. Practice a little of that good governance with yourself. At work you are accountable to your boss, your board of directors and your plan members, but no one can hold you accountable for your own personal development except you.
So check in with yourself regularly and assess how you’re progressing towards your long-term goals in each area of your life. Are you feeling out of whack? Have you put too much time and effort into one area and neglecting the other areas? Don’t worry, if you’re checking in regularly, you can readjust your time and effort to get back on track.
So as a new year’s resolution this year: invest in yourself. Take steps to ensure that what you’re doing is sustainable and will add value to your life in the long term.