Lighthouse is running a two-week-long series in which we share some of our principles of investment. All you need is an open mind and a few minutes each day. You can keep tabs on the action at the Principles of Investment index.

Before you read this section, I should mention that you might find yourself re-starting one or both explorations several times before you gain any significant value, because it is easy to lose sight of where you started and what is, and what is not, important.X Analysis X Clients X cost-averaging X diversification X funds X Investment,

By comparison, it takes a Lighthouse consultant only about 20 minutes to complete a thorough exploration of both sections (all 4-Dimensions) with a person or couple, before he then ‘maps’ out a suitable platform or solution (the boat) and a likely navigational course (tactics and strategy) to take you comfortably to your destination.

Where are we?

Before you can chart a course, you need to know your present location right now… It would also help to know the immediate weather conditions – as you can see them from where you are standing.

To help get the ball rolling, I have listed some questions and answers below. While there will be many questions we might ask, these represent some of the ‘right’ questions we should at least be beginning with…

• Is the global economy in recession? Yes
• Has this happened before? Yes.
• Will recessions happen again in the future? Yes.
• Are markets volatile and unpredictable? Yes… but they always were – or did you forget this?
• Is inflation something to worry about? Yes

You can pursue each answer to fresh and more detailed questions, which will themselves lead to more questions and so on. Such exploratory exercises frequently result in the explorer losing their ‘bearings’. The make this exploration more valuable, do try and keep the questions as simple as you can, and control how deeply you dig. While theory says you should know all you can about what you are doing (or intend doing), too much information becomes an inhibitor to action rather than an activator; which does emphasis part of my covering introduction.

Where am I?

This next set of questions are more a ‘self-assessment’. The secret here is to be objective and realistic when you consider what you have got, what you need, and your means of travel. You can dream about the journey and destination later on, but right now, it is vital to ‘audit’ where you are… and not populate yet another wish-list. Again, let the questions and answers determine the path of this exploration. Some ‘right’ questions to get things moving for you…

• Do you have existing investments? Are these performing within your expectations, or not? Do you know why?
• Why am I an investor? Is it because I enjoy the challenge? Is it because I need to plan for my or my family’s future?
• Are your investments or financial wellbeing adequately protected if your ship gets lost, sinks or gets damaged after leaving port? If not, why not?
• Do you have excess income and/or savings? If yes, what part is ‘excess’ and what is ‘needed’ for immediate financial security and/or lifestyle?
• Are you a risk-taker or not when it comes to investment? Rate yourself on a scale of 1-10, where ‘10’ would be roulette and ‘0’ would be cash in your mattress. Do your existing investments fit this ‘rating’, in your opinion, and based on your ‘experience’ with those investments so far? If the answer is “no”, why not?
• Do you have a financial adviser already? How experienced is he? Did he explore all 4-Dimensions with you before setting sail? In your opinion, could such an exploration (or lack) have made any difference to your experiences on this journey so far?

There are thousands of questions that can be asked (and most can be answered). But only a handful of these will be key to determining what ship you need, and what course and speed to set for your journey. The true complexity here is that the right questions and answers are unique to every individual, which might explain why this exploration is so difficult and challenging. This might also explain why so very few clients have done such an exploration before they came to Lighthouse.

Next Friday, we’ll start looking at “Part 2 – Where are the markets going?”. If you liked this article and wish to see “How” we deliver this for our clients… we can arrange a personal introductory discussion with one of our consultants… after-all, this is the point of this blog, helping you

This entry was posted on Wednesday, July 8th, 2009 at 7:00 am and is filed under Investment, Principles of Investment. You can follow any comments to this post through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.