Empowering yourself through financial education

After six years of annual editions, we have decided to retire the Aikapa Financial Planning Calendar. Once this decision was made, it became clear that I needed to find some new way to address financial education since it is a fundamental aspect of our (AIKAPA’s) mission.

But what was it to be?

I explored tools that help build healthier financial habits. I listened to several clients describe how difficult it is to evaluate media stories about the market and investments. This led me to recognize that the financial media and the internet tend to hype products and encourage quick (‘easy’) financial decisions without providing any fundamentals. What was needed, I realized, was a tool to help you educate yourself and build your confidence regarding investments.

In the coming week I’ll be sending our clients a well written book that I feel best describes the fundamental behavior and considerations of a successful long term investor (let me know if you wish me to send it to a different address). To encourage you to read the book and truly absorb the most important principles of investing I’ve taken the liberty of personalizing it–tabbing and annotating the sections that I think will be of most value.

Whether you choose to read the entire book or just the highlighted sections, it is my hope that you will understand why your portfolio is made up of low cost, quality investment funds, why they are diversified, and why we don’t buy the latest gimmick or sell only based on a poor annual performance. I think you will see that the role of a long term investor is to preserve purchasing power while holding on to a margin of safety so that we can build our wealth. Each component in your portfolio has a role. If we want to change them we can, but never as an emotional response (or as the book states – never in response to the bipolar reactions of “Mr Market”). If you do buy and sell based on Mr Market’s reaction then you’ve entered in the realm of speculation.

As markets go up and down there will be times when a diversified portfolio will not perform as well as those focused in one sector. Unlike a single sector portfolio, it is a diversified portfolio that provides a long term margin of safety while allowing for growth opportunities. If you fully understand where you are going and how your portfolio will get you there then you’ll embrace market gyrations.

I hope this book and future discussions will help you filter out the investment media and help you better understand your own portfolio.

Edi Alvarez, CFP®