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Here at Oak Four, we try to keep the financial jargon to a minimum. But even where we may succeed, you’re likely to encounter references elsewhere that can turn valuable information into mumbo-jumbo yet to be translated.

Consider us your interpreter. Today, we’ll explore correlation, and why it matters to investing.

A Quick Take: Correlation Helps People Invest More Efficiently

Expressed as a number between –1.0 and +1.0, correlation quantifies whether, and by how much two holdings have behaved differently or alike in various markets. If we can identify holdings with weak or no expected correlation among one another, we can combine these diverse “pieces” (individual investments) into a greater “whole” (an investment portfolio), to help investors better weather the market’s many moods. …

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Photo by Jess Watters on Unsplash

If you enjoy fine literature, we recommend all of Warren Buffett’s annual Berkshire Hathaway shareholder letters, dating back to 1965. While financial reports are rarely the stuff from which dreams are made, Buffett’s way with words never ceases to impress. His 2016 letter was no exception, including this powerful insight about market downturns:

“During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy.”

This actually is a good time to talk about scary markets, since we haven’t experienced a severe one in a while. …

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Photo credit to Antonio Lainez

“I have some bad news for you, you only have between 5–10 years left to live. The good news is that you won’t be ill, the bad news is that you‘ll have no notice of the day of your death. What will you with the time you have left”? “Would you change your life and if so, how would you do it?”

“I’d probably not work as much. I’d spend more time with my kids and I’d make sure everything is well organised so my family don’t need to worry. Oh, and I’d probably travel more too”.

I hear responses to the initially posed question a lot. But I don’t always see people take the actions that are consistent with what they are telling me. …

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The dilemma for anyone looking to secure their financial future

We all face a unique set of challenges in securing our own financial future. While we are working and our earnings are regular and possibly increasing, many of us will undoubtedly find that our outgoings and spending also increase. In short, our mortgage is larger, our car is more expensive, we go on more expensive holidays and in general spend an awful lot more on things than we did before.

Of course, everything is great while the money comes in. You may feel that you deserve to treat yourself for all the hours of hard work. But what if it all stopped tomorrow or, more importantly, what if you wanted it to stop but were afraid of losing your status? Building your career is one thing, but building your assets to create financial independence further down the line is equally important, even if you don’t think you need to right now. If you’re not creating financial independence now you could end up needing to work longer than you wanted to, or you’ll have to make some drastic lifestyle changes. …


Kevin Wood

Founder of Oak Four, a values driven Financial Planning firm in the UK.

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