Unfortunately, I got a song stuck in my head this week—Kenny Rogers’ “The Gambler.” As I had financial planning on my mind, I wondered if there was any sage advice for investors from the old gambler. I found the three main parts of the chorus held valuable lessons for approaching financial goals and objectives.
“You’ve got to know when to hold ’em. Know when to fold ’em.”
I have clients with legacy stocks. These are stocks they inherited or received as a gift. They have sentimental value—sometimes clients say, “My dad bought them, so they must be a good investment”—but they don’t fit with their current portfolio.
Other legacy stocks are keepers. Understanding the difference can be difficult. Looking at the impact on the overall portfolio is a good start. Do these stocks overweight a certain category? How will a sale affect taxes? Is the company still a good investment? If we don’t keep this in the portfolio, what will be the replacement? Could we use these positions to fulfill charitable obligations?
Sometimes it is just a matter of talking through the alternatives. Sometimes it is just a matter of time. Selling a legacy stock can be seen as a betrayal or a rebuff to the previous generation.
“Know when to walk away. And know when to run.”
I get approached by investment wholesalers regularly. Each one has a product or approach that will help my clients make money, not lose money, diversify their portfolio, take advantage of a current trend.
The products sound good on the surface until you start getting into the details.
Unfortunately, many investors don’t get into the details. Peter Lynch once said, “Never invest in an idea you can’t illustrate with a crayon.” I have a box of crayons in my desk leftover from when my kids were much younger, and it comes in handy with clients’ young children. The more the sales pitch uses fear, greed or anxiety to make a sale, the faster you should run. The other time you should run is when there is a time pressure and you “have to act fast or you’ll miss this great opportunity.” You need time for your rational brain to kick in and override your primitive instincts.
“You never count your money when you’re sittin’ at the table. There’ll be time enough for countin’ when the dealin’s done.”
I have clients who check the value of their portfolio once a week or even every day. It’s important to monitor your portfolio, but don’t obsess over it. We all have a mental scorecard that tells us how we are doing. It is easy to get caught up in short-term market fluctuations and lose sight of long-term goals or forget why you have your current portfolio allocation. Planning for a secure financial future is broader than how your investment portfolio is performing.
I am sure this is not what Kenny had in mind when he wrote “The Gambler,” and I hope he doesn’t mind my taking liberties with his lyrics. Being a good investor is a lot like being a good poker player. Know how the game works, take a disciplined approach, learn from experience, and know whom to trust. The other adage in poker is that the card sharks are always looking for new fish to devour.
As my son says, “A little street cred goes a long way.”
Professional investment advisers can help you with your investments, but you need to gain the knowledge to be able to “play” effectively and to know when to push back and question different approaches.•
Hahn is a certified financial planner with WWA Planning and Investments. She can be reached at 812-379-1120 or [email protected]