Investing in HD

Question: Investing has once more turned topsy turvy last week. It is like it wants to be volatile. And while that volatility leads to excitement, I am not sure I am cut out for investing. How would I know if I can endure the ups and downs of investing. Asked at “Ask a Friend, Ask Efren” free service through www.personalfinance.ph, Facebook, and SMS.

Answer: When I first saw a high-definition or HD channel, I was amazed to see the clarity of the picture. But when I saw an HD channel through a large screen TV, I was blown away by the detail of the picture. But at the same time, I chuckled a bit I because I could now see that the once porcelain-skinned actors I watched also had skin blemishes like us ordinary mortals. But the blemishes did not take anything away from their skill in acting.

Investing is touted as the greatest thing since the invention of sliced bread. Investing helps people better afford their future. It is a basic concept in economics and is often referred to in personal finance as the central theme of time value of money.

People and businesses have built their fortunes around investing, from the lucky beginner to the richest investor alive, to the most savvy trader there is. Investing has propelled a once sleepy department in the banking industry called the Trust Department into the forefront of finance.

It seems that investing is nothing but smooth and cool. But if you were to look a lot closer at investing, it is like any other activity, fraught with tales of hardships and risks. In other words, it also has its own kind of blemishes.

Still, risks are not the rewards of investing. Risks after all can be managed. My advice to you is to take only the risk you need to take. That level of risk may not be the one you want to take in investing; but if it is the level that you need to take, then go ahead and accept it like you would any challenge in life.

Investing is never easy, and don’t let anyone convince you otherwise. But you can grow the callouses to withstand the pain in many ways. There is in-depth research. There is peso cost averaging. There is diversification. There is the use of professional fund managers through pooled funds and investment management accounts.

But the better way to weather investing is to manage the other components of the wealth formula, that the funds you want for defraying the costs of your future needs are based on the money you start with, the amount of additional money you can invest periodically and the amount of time you devote to investing. The more you have of the latter three, the less investment return you will need to reach your target funds. And the lower your investment return, the lower the risk you will need to take.

It is true that investing up close (or when viewed in HD), just like the once thought-of porcelain skin of actors, also has imperfections. But those blemishes do not take anything away from the potential rewards from well thought-of investing.

You can only manage risk in investing; you cannot neutralize it altogether. The better way to manage risk is to control what you can control, which are the money you start with, the funds you can add periodically and the time you keep investing.

Again, take only the risk you need to take and you will finally get to fully enjoy investing in HD.