Family Business: Money Management Lessons - Part I

Kim Kantor

Photo by Lexey Swall, Naples Daily News

Kim Kantor

Kim Kantor

Photo by Lexey Swall

Kim Kantor

Money lessons are hard to come by for most people. Perhaps we want to hear something different than what we know as solid, reasonable advice.

Less experienced investors want glamor and quick fixes. It was years before I understood a story my father told me; the lesson he passed on was that wealth would be achieved by doing the right thing, consistently and patiently, as long as you were headed in the right direction.

He would say, "Focus on what you can control — avoiding mistakes." Do your homework, and think through your decision before taking action.

It was James P. Owen, author of "The Prudent Investor: The Definitive Guide To Professional Money Management," who wrote of the 10 most common mistakes affluent investors make and how to avoid them. I have found these to be powerful lessons for any investor and will share them in this and my next two columns:

1. Not Running Your Finances Like A Business

Treating your investments like a part-time job does not place them in a top priority position. Highly successful people who are casual or haphazard about investing are most likely oblivious to the amount of money it takes to maintain their lifestyle. No matter what your situation, if you are investing assets of $1 million, $2 million, $5 million or more, you have a great deal at stake.

At this level, managing your money is like running a business. As the CEO of your investment "company," you must make sure your assets are invested in a systematic disciplined way. To do so, you must have a business plan that covers both the short and the long term; quantifiable goals against which to measure results — incorporating both life goals and investment goals; a strategy to attain your goals; and the right professionals to do the job.

2. Not Defining Your Investment Policy

When you let assorted fad statements like "bonds are safe" or "this isn't the right time to buy stocks" shape your investment approach, you are vulnerable to missed opportunities at best, and costly errors at worst. What is an investment policy? It is a strategic long-term framework that defines for one, your asset allocation policy.

This lays the foundation for the mix of your investments with the balance of risk and return that is proper for you. This policy should be in place and created with your financial consultant before hiring any manager or selecting specific investments for your portfolio. To create a successful investment policy, consider your time horizon, income requirements, tolerance for risk and volatility, and return expectations. Investment policies, like any other part of your planning, should be periodically reviewed. You may need to make some adjustments if your goals or the investment climate have shifted in any meaningful way.

3. Trying To Time the Market

It is only human nature to want to time the market. Many investors continue to try time and time again, despite all evidence they will never succeed. On Wall Street and in the homes of seasoned investors, the consensus is clear: it is time — not timing — that makes you successful in the market.

The problem is virtually impossible to time the market correctly, consistently. Historically markets are an upward trend over time, and stocks make most gains in short, climatic spurts, missing just 30 of the best market days can make for a significant underachievement of your goals. Waiting for the right time to jump back in after a recovery is a difficult, if not impossible challenge.

The lessons learned today evolve around mistakes that may be avoided if planned for properly. The errors investors make are simple yet complex, profound yet clear. Don't fall victim to what you might be able to avoid – common mistakes in investing. Be sure to read Part II for additional common mistakes investors should avoid.

Kim Ciccarelli Kantor is president and founder of Ciccarelli Advisory Services Inc., a family owned and operated firm in Florida and New York. The firm is at 3066 U.S. 41 N., No. 202, Naples. 239-262-6577

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