Wesley Snipes was in a movie many years ago, called Passenger 57. It was basically a film about a one man’s attempt to take on an airliner hijacking. During the course of the movie, he gets engaged in the time honored, bad action hero scene where he talks smack to the European terrorists over the phone. During the phone call, Wesley Snipes says, “You ever play roulette?” The mad European terrorist replies, “On occasion.” Snipes responds with the famous phrase, “Well, let me give you a piece of advice. Always bet on black!” In the world of money and investing, we have been taught time and time again that is it important to build a diversified portfolio to manage the risk that different investment classes can have on our portfolio. However, time and time again, I see people who walk through my door who have gone to a ‘Bet It All On Black’ investment strategy by putting most of their eggs in one stock, one asset class, or one business venture. Here are three smart money move ideas on how to prevent from losing the game of roulette by betting it all on black.
- Set up an investment policy statement – An Investment Policy Statement (“IPS”) is a document, generally between an investor and the assisting investment manager, recording the agreements the two parties come to with regards to issues relating to how the investor’s money is to be managed. The presence of an IPS helps to clearly communicate, to all relevant parties, the procedures, investment philosophy, guidelines and constraints to be adhered to by the parties. It can be seen as a directive from the client to the investment manager about how the money is to be managed, but at the same time the IPS should provide the guidelines for all investment decisions and responsibilities of each party. (source: wikipedia.com) The key to the investment policy statement is to limit how much of one position you put your cash into at any given time. For example, the portfolio cannot hold more than 10% in one individual fund or stock.
- Have an exit strategy – Whether you made money on a particular investment because of skill or luck, the problem is: not having a predetermined game plan on how you will exit out of the investment, whether it is an individual stock, a piece of real estate, or a business venture. Far too often over the years, I have seen people get carried away with the thought that the investment they own, just simply could not lose money. This type of dangerous ‘bet it all on black’ thinking can be very dangerous to building long term wealth.
- Get All Of The Information – Have you ever heard of someone who invested money in a business that was sure to triple in value? Or perhaps an individual that bought a “sure to make return” condominium off some remote beach in the United States? Maybe, it was a stock tip of a technology company that was supposed to quadruple in the next year? Before you make any type of investment, you should be sure that you have reviewed all of the information carefully. Read the prospectus, examine the profit and loss statements, and spend time doing your due diligence.
Building wealth is a very difficult mountain to climb. Almost every investor at some point in their life, spots an opportunity that they believe will get them to the peak in a quicker amount of time. It’s important to make sure you never bet all your money on black, red, or a specific number no matter how positive you are that the investment is sure to make your millions. If you make the wrong decision, you’ll be sure be sitting in the back of the plan forever. Go to www.oxygenfinancial.net if you want to review your investment policy statement today.
Written by:
CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Editor in Chief of Your Smart Money Moves
Co-CEO and Founder of oXYGen Financial, Inc – The Leaders in Gen X & Y Financial Advice and Services
Ted Jenkin is one of the foremost knowledgeable professionals in giving financial advice to the X and Y Generation.
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