What Game Are You Playing? How This Dictates Your Investment Strategy
“If one wishes to be happy, this could be easily accomplished; but we wish to be happier than other people, and this is always difficult, for we believe others to be happier than they are.”
- Montesquieu
A few key questions you need to ask yourself when it comes to your money and investing:
What do you want to do with your money?
What game are you willing to play?
Some examples of “games” investors can play:
Invest in real estate to try and generate passive income
Become a stock picker with the goal of finding the next homerun
Invest in low cost index funds and trade infrequently
Day trade the stock market capitalizing on market swings
Utilize derivatives and options to hedge
Put cash under your mattress and formulate the next conspiracy theory about how ‘big brother’ is out to get you
With investing, there’s really no right or wrong answer, and that can drive people crazy. Certainly, there are ‘best practices’ and recommendations out there that can help you avoid unforced errors.
But it’s critically important that you internally outline the game you want to play as this creates discipline and provides a sense of purpose.
You can certainly invest to just generate more money. But this may cause you to chase returns, and the only answer to your problems is “more”.
A lot of concepts in finance revolve around the idea of “optimizing” – optimize your returns, optimize your cash, etc.
While those strategies are rational and the numbers make sense, it may not relate to who you are as a person and it’s unreasonable given your specific situation.
A spreadsheet would tell you all day long to not pay off your mortgage if it has a low interest rate. Invest that cash instead!
But you aren’t a spreadsheet.
The spreadsheet doesn’t factor in having the peace of mind that no matter what, you have a house that cannot be taken away.
I’ve determined that the game I want to play is to be a passive investor with a long time horizon. Buy broad based index funds with excess cash and keep the money invested until an opportunity presents itself or frankly I want to splurge (vacations, going out with friends, etc.)
That’s just the reality of it.
I can get worked up about the daily headlines and worries.
What’s the Fed going to do next? Where is inflation headed? Where will the S&P 500 be a year from now?
But this is all just noise to me.
I love this Morgan Housel quote, “A lot of financial debates are just people with different time horizons talking over each other.”
I’m comfortable with the strategy that I’m playing. I don’t chase the stock picks you see on Twitter or CNBC.
I played that game and ultimately retired.
Now I’m focused on direction and I would recommend you do the same.
We get asked all the time, “how am I doing against my peer group?” “Why don’t we invested in X company? My neighbor did and he seems to be doing well.”
Well your neighbors and peers could be living completely different lives than you.
We all have different timelines, objectives, and risk tolerances.
But when you compare yourself to others, and try to play their game, you could start taking on too much risk or putting yourself in a vulnerable spot all because you were trying to keep up with the Joneses.
In finance, you only need to focus on a small number of variables that truly make a difference.
And by asking yourself these questions, you can determine where you want to go and how you would like to get there.
Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
All indices are unmanaged and may not be invested into directly.
All investing includes risks, including fluctuating prices and loss of principal.