Mind Over Money
Wisdom Letter 37 | The one about Personal Finance
“I Don’t Know”
That’s the answer I arrive at every time I think about what should I do with my investments these days.
What are You doing with your investments right now?
Are you pulling out of them? Fearing the volatility of the markets?
Or are you doubling down on them, trying to pounce upon on a once in a lifetime opportunity to “buy low and sell high” as they say?
The rational thing to do seems to be to invest more right now if you have the liquidity.
Of course, the risk you run is not knowing whether the markets would fall further and your money will lose value immediately, or would the markets start to recover for good and you can enjoy steep rewards over a long period of time.
You run the risk of not knowing the future, of uncertainty and of losing all your money in a bout of stupidity. Like trying to catch falling knives.
The regret can be immense and life altering.
The people who lost money during periods like the 1929 depression or the 2008 recession have been known to turn conservative for life.
They ended up missing out on great investment opportunities later in life, because they were too afraid to stay in the market after tasting such bitter ramifications.
History tells us that the financial markets have bounced back from such large scale disasters more often than not.
Rationality tells us that we will bounce back from this pandemic as well.
After all, our species has an excellent track record innovating out of extreme circumstances.
We do our best work when our backs are against the walls.
In the modern world, companies working in an organised economy are the engines of innovation.
So its certain that we will come out of this, driven by the companies that will innovate under these extreme circumstances.
So this is a good time to own those companies. Either by building them yourselves, or by investing in them.
Rationality does make it seem so simple.
But what is simple is often not so easy.
Putting our money in the wrong projects right now can result in great value destruction and permanent loss of capital.
It can have an irreparable loss to our wealth and cause long term negative effects to our quality of life.
What can we do then?
As I said — “I don’t know”
But it seems the least we can do in times of such a crisis is understand our own relationship with money. We can reflect and think deeply about what role does money play in our life.
Do we look at money as an end in itself to be achieved? A milestone to reach?
Or do we look at it a means to other ends? A mere vehicle to reach other larger milestones.
And also, we can teach ourselves about how the whole machinery of money works. What happens when you buy a bond or a stock or a mutual fund.
Where does your money go and how does it add on to itself? How does “compounding” work actually? The tiny nuts and bolts of it.
The COVID-19 pandemic has had tremendous physical, psychological and financial impact on all of us. But if you are reading this, there is a good chance the you have the resources to stay in lock-down and invest the time in yourself.
If there’s a tiny silver lining in the whole crisis, its that it has given millions of us large chunks of time to think about the really important stuff in our lives. Time, which if invested wisely can reap exponential returns over the course of a lifetime.
Today on The Wisdom Project, we take a look at the psychology of money, its value, what role does it play in our lives, and what common mistakes we make in dealing with it. We also go back to the basics, take a first step to financial literacy, take an “Intro to Finance”.
And yes, we ask an old friend to help us understand how the world will recover economically from the Corona Virus.
Today We talk Personal Finance and Covid Economics.
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