It seems to be a universal canine attribute that dogs just love to chase cars. But I wonder if the dog has ever considered what it would do if it were to catch the car?
When we invest, our goal is to grow our money. But growing investments are a little like the dog who catches the car. Now what do we do?
- Do we sell in order to lock in our gains?
- What if the investment continues to grow after we sell – we lock out those gains?
- But if we wait too long and sell on the downswing – we lose anyway!
- Whichever decision we make – our cash is on the sideline – earning nothing? Then What?
- When do we get back in?
- If we get back in when the market is going up – we miss some of the growth that’s already happened.
- What if we get in while it’s going up – and it starts going down?
- If we get in while it’s going down (getting cheaper) – what if it keeps going down – we’re stuck with an automatic loss?
- Besides, do I really have the nerve to get back in on a falling market?
These kinds of conversations are so exasperating; most of us “out-source” the decision to a broker or advisor. Never mind that the broker or advisor doesn’t know the answers either – we let them pretend to know just to avoid the migraine of having to contemplate the unknowable ourselves.
That’s why I like Money Contracts. If that’s a new term to you, think of a Money Contract as an investment that grows with the stock market, but never forces us to make a “sell” decision to either capture a gain, or lock out a loss.
Money contracts can never go down in value, they can only remain flat – or go up in value. So half the timing decisions that market-exposed investors face are taken off the table in the first place. There’s never a need to capture a gain out of fear that an investment could reverse its trajectory; or sell a loser to prevent further losses.
Instead, earnings are calculated from time to time (usually monthly or annually), and automatically credited to your money contract, without selling anything. No transaction – no timing – no decisions – it just happens.
Not only do money contracts remove the emotion of the decision process, they also dispense with all the transaction costs of doing so. And importantly, they keep 100% of the money at work at all times since money is never on the sideline waiting for another emotion-driven re-entry decision.
Learn more about Money Contracts – they can solve a whole basketful of problems.
