Carl Richards
Carl Richards is a certified financial planner in Park City, Utah. His new book, “The Behavior Gap,” was published this week, and we’ll be running excerpts all week long. Meanwhile, his sketches are archived here on the Bucks blog.
A friend of mine recommends what he calls the Overnight Test. Ask yourself what you would do if someone came in and sold all of your investments overnight. The next morning you wake up and you’re left with 100 percent cash in your account.
Here’s the test: you can repurchase the same investments at no cost. Would you build the same portfolio? If not, what changes would you make? Why aren’t you making them now?
Patricia Wall/The New York Times
People have a tough time with this one. Maybe they’ve long since forgotten why they bought those investments in the first place (there must have been some reason, right?). It’s kind of like certain relationships: you grow apart, your lives take different directions and there’s nothing much left to talk about … but you keep hanging around with each other because change would require work.
In the case of investments, you can’t afford that kind of stagnation. You need investments that make sense given your current goals, which means you need to take a look at those goals, which means … work. This is why some people who take the Overnight Test just want to ask (Please!) for their old investments back. They may not admit it, but they just don’t want to do the work of coming up with new ones.
I understand. We’re busy. We have a lot on our minds. Who wants to add another item (in this case, “review investment portfolio”) to their to-do list? Unfortunately, this is one to-do that really needs to get done. I’m not talking about change for the sake of change. Buying and selling investments costs money. I’m saying you need to know what you own, and why you own it.
Excerpted from “The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Money,” published by Portfolio/Penguin. Copyright © Carl Richards, 2012. Reprinted with permission.
Article source: http://feeds.nytimes.com/click.phdo?i=cdb240c291fd9d11592af5b3d4d44fad
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