Simple Pound

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Trent @ The Simple Dollar has recently dedicated many posts on how to set and reach goals. Especially when you’re just starting the whole “money business” there is hardly anything that is more important than having clearly defined goals in order to track your progress and ultimately reach your goals - one of the reasons I’m writing this blog!

The article lays out three major reasons why people not reach their goals, and surprise, surprise - it’s not really much to do with not having enough will power to keep focussed on a particular goal. The reasons for failure have their roots very early on, namely in the phase the goals are defined. Trent argues that any goals that are unclear, overly optimistic or too distant have a high chance of under-achieving or failing (depends on how you put it…).

Trent’s post reminded me of an acronym that’s commonly used in business and that you might have come across - SMART. SMART goals have the following characteristics:

• S - specific, significant (you don’t micro-manage…)
• M - measurable, meaningful
• A - achievable, action-oriented (you can influence the outcome)
• R - realistic, relevant
• T - timely, tangible, trackable

I’m not usually a big fan of “miracle cures” but I think it’s at least worth checking your goals against the above to make sure you stand a chance at actually achieving them.

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The hearing for the NatWest vs. Brennan case on unlawful bank charges finally took place (after being postponed earlier in April) two days ago and the only reason I haven’t updated you immediately is that nothing really exciting happened. People are still trying to figure out whether or not this case should actually go to court or not - a hearing about a hearing, as Neil @ Fool.co.uk puts it .

However, if you really crave some details on what’s going on, I figured I might as well share a link with you that is the best cover of the events I’ve come across this week - from someone who has actually sat through the hearing. Read the story here.

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The truth is, no matter how much you know about investing, it’s worth nothing if you don’t have any money at your disposal to invest… The only two ways you can deal with this problem is by either increasing your income or decreasing the amount of money you’re spending.

Since most of us will be facing some difficulties trying to increase our income in the short run, we’re ’stuck’ with the latter. There are numerous ways, and below is a list of links of get you started.

• 50 ways to save money
• 50 more ways to save money
• 101 ways to cut expenses

Bear in mind that the last one is based on American lifestyle and their available options (like IRAs…their retirement savings account), so while some of their tips won’t necessarily apply to British people (or anyone outside the US for that matter), many nevertheless do - it’s definitely worth a read.

Having said that, I don’t necessarily agree with all of the proposed options, but that is a matter of taste or attitude. In any case, you’re not expected to put all of these into practice at once. You would end up feeling deprived and unhappy, which is not the point of this exercise. Pick your favourites and stick to them for a little while before you feel comfortable making further adjustments (if you feel you have to…).

Let me know what your favourites are or whether there’s anything else you can recommend!

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What is the most difficult thing about investing? Picking shares? Timing the market? Evaluating funds?

Actually, probably neither of those. This time the golden buzzword is not diversification, but patience. Hanging in there and trusting your own decisions. If you are investing for the long(er) term, you will probably have researched whatever investment you thought was best for you. Leave it at that and relax.

Kevin @ Fool.co.uk suggests a holiday in Barbados.

Yes, the market might experience a downwards trend for a few weeks, sometimes even months. But thinking back to stock indices, which are commonly seen as indicators for a country’s economy, you should now know that in the long run you’ll gain - if you can keep a cool head.

Even if one of your investment options should go bust, you obviously have a diversified portfolio that evens out the losses you’ve made in that particular position… And optimistically seen, you can even learn from your mistakes, understand why you made the wrong choice (accepting that sometimes particular circumstances that made a share crash could not have been foreseen) and avoid it in the future…

In my case the experience I take away from such a mistake is not to blindly trust someone else’s advice without double-checking it is built on solid grounds. In April 2000 Nokia’s shares underwent a stock split of 1:4 which meant that a share previously priced at 200€ could now be bought for the bargain price of 50€ (every investor who had owned shares in the company before the stock split found the 4-fold amount of shares in his investment account the next morning…).

My mum told me that I simply had to buy now. Since one of the bonds my parents had bought for me previously had just matured I followed her advice (blindly). Initially happy to see my new shares increase to 65€, I soon had to learn what it feels like to observe a solid value decrease. Suddenly priced at 10€, my shares had lost 80% of their (original) value - but I held on to them.

Today they are still trading at under 20€ but for some reason I just can’t let go of my very first investment mistake… I’ll report back in 10 years time whether I am still making losses…

Note: The scale of the chart is logarithmic which makes the losses look much less dramatic than they really were (or felt?). Also, the chart prices are stated in US-$ rather than Euros (thus the current closing price is approaching $25).

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Fool.co.uk published an article with advise for first-time investors, which I think sums it all up nicely and confirms what I have said about index funds, ETFs and diversification so far.

The author gives a list of tips on how not to lose money, which reads as follows:

• don’t put it all in one company, especially not a small one
• spread it across large companies by using a tracker (we’ve seen that you can get some pretty decent returns in the long run, so return on investment is not an argument in favour of buying single shares)
• diversify by buying companies in different sectors
• keep of bandwagons - when “the blokes down the pub” are all talking about the latest investment craze, that’s when it’s time to look elsewhere
• drip your money in, regularly, over a longer period (some index funds allow a monthly contribution of as little as £20)
• only invest for the long term

While he then concludes that he’s probably gonna put all his money “on a high-risk small company”, this is clearly not what you should take away from this. When you don’t have much money to invest, do yourself a favour and check against these rules to avoid disappointment!

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I just read a post on StopBuyingCrap.com that nicely summarises what you need to think about after you graduate and preferably before the first paycheck is deposited in your account. While it doesn’t give you any concrete information on what to do, it should get you in the mood of thinking about what’s going to happen next. And even if you are already doing this, it should still be an entertaining read.

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