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Financial Literacy:  Starting Your Investment Program

by Captain Bob Houle, USCG (retired)

Our earlier articles in The Intercom emphasized the importance of having a sound investing program for our family’s future financial security and independence and the urgency of starting such a program now.  Last May we published an article titled “YOUR Financial Literacy - Take the Test” where we offered you an opportunity to test your overall financial knowledge (a necessary self-assessment to perform before starting your own investment program).  You might want to refresh yourself by re-reading the article and taking the survey tests again.  Assuming you are satisfied with your results and would like to get serious about investing for your future, what’s your next step?

When starting an investment program, we have to decide if we want to have full control over our investment program or if we need to share that responsibility with others.  To start, note the term “share” … we can never turn over total responsibility for our future financial security and independence to anyone else.  Delegate, yes.  Shifting responsibility to others, no!  And no one other than you and your family will be held accountable for the results.

So, how can you objectively know if you are ready, willing, and able to create, maintain and  continuously improve a self-directed investment program?  One that you fully control?  The balance of this article will discuss what you need to be able to do and what your options are if you can’t.  Next month’s article will assume that this month’s self-assessment indicates you don’t currently have what it takes to be a successful stock investor. 

We start by assessing our  “Investing T-level.”  No, not the low T stuff advertised on TV!  We’re talking about our ability to start up and manage our family’s financial investing program and to be able to pass along those time-tested success lessons we learned to others.   How much control do we want, or can have,  over our investment program?

All successful investors share three characteristics:  Time, Temperament and Talent.  Like a 3-legged  stool all three need to be present and in balance.  To the degree that we score high in all three, that’s an indicator that we could be successful directing our own stock investment program.

Time:   Like most folks, our time is precious: work, family, social life, community activities all compete for our attention.  No one can give us more time, so we have to make the best use of what time we do have.  That means working smarter and setting priorities.  If we don’t have the time, we need to delegate portions of our investment program to others.

Temperament:  Various studies have shown the average investor's investment return over time is much less than if their assets were just put into a passive index fund and left to grow.  Why?  Human temperament :  we all think of ourselves as above average.  We think we can time when to get into the market and when to get out.  Some even call it "playing the market" and their mantra is “buy low and sell high.”   Inevitably, when they fall short,  there's even more pressure on to perform, leading to "doubling down" to make up the shortfall.  That, of course, reinforces their failure spiral.  Hubris is the enemy here.  If we don’t have the temperament to act logically and not emotionally, we need to seek support from trusted financial advisors to whom we are willing to listen to and trust.

Talent:  Assuming we have the time and temperament to be successful, do we have the necessary talent? By talent we mean having the knowledge, tools, and training to create, monitor, update and continuously improve our investment portfolio.  This is where situational awareness comes in -- are we able to understand what's really going on in the investment world and do we have the knowledge to know what to do?  That takes talent. If we’re unable or willing to take the time to acquire that skill set, we have to hire someone to guide us and for us to be willing to listen to and follow that advice.

If we don't have enough of these three T's or have them in the proper balance, can we still be successful investors?  Yes, of course,  but we are unlikely to be successful in a self-directed investment program.  We will need professional assistance.

Next month we’ll discuss our options on seeking professional assistance in our investing program.  Future articles in this series will introduce the requirements and resources for being a successful, self-directed, stock investor.

Thank you again for your service to our country and to our fellow members and their families.  It is time for all of us to act and help others become financially secure and independent.  Never Stop Serving!

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