How much time do you waste worrying about things over which you have no control, while not spending enough time working on the things you can control?
If you’re an average Canadian, you probably own a principal residence and have a few dollars invested or saved somewhere. If you have money invested in stocks, bonds or real estate, you may be concerned about losing your money. This is a reasonable thought; although, depending on what you’re invested in, your concern (read: worry) is probably a waste of time.
If you’re going to invest, you have to assume some risk. Risk comes in many forms, but here’s a list if you want a reference:
Interest Rate Risk – rates can rise or fall
Business Risk – think Nortel
Credit Risk – borrower can’t pay you back
Taxability Risk – taxability of investments/income can change
Call Risk – bonds can be called back by company before maturity
Inflationary Risk – can rise and fall
Liquidity Risk – no one wants to buy what you’re trying to sell
Reinvestment Risk – what to invest in when your GICs or Bonds mature
Political Risk – think Russia
Currency Risk – think Canadian/US exchange rate
Systemic Risk – think sub-prime mortgage meltdown
Unsystemic Risk – think striking employees
Now ask yourself, how much control do you have over these things? Zero. You have zero control over all of these types of risk. So if you’re going to invest, you have to accept the fact that it’s not worth worrying about things you can’t control.
So, what can you control? For starters, you have control over whether or not you invest. You could leave your money in your bank account or under your mattress, but most people are better off investing in order to at least have some chance of coming out ahead.
Others things you have control over include:
Taxes – think things like using RRSPs or not
Cash flow – think earning or spending
Incorporation – if that’s something you can do with your career or job
Savings – waiting to buy something until you have enough money
Debt – how much to take on and, to some degree, at what rate
Debt Reduction – changing payment methods or amounts
Banking – think shopping around for low fees and rates
Transportation – drive or walk? New or used? Public transportation?
Leisure Time – think eat at home or go out
Family Time – how much you spend with your loved ones
Rest – when you go to bed or relax
Worrying – you do actually have control over this!
I could go on about things you can control, but I think you can see that there are a lot more things you can control than things you can’t.
To give you a specific example, let’s say you invest in Royal Bank common shares. Let’s assume you bought your shares today for $73.00 per share. Would you worry about your money if the share price dropped to $35.00? Most people probably would, but it’s really not worth the trouble. Why not? The price of Royal Bank common shares has nothing to do with the day-to-day operations of the Royal Bank (they’ll still go on making money); however, more importantly, you don’t have any control over the price of the stock.
If you’re going to have investments in the stock market, you have to know expect that values will go up and down. That’s the nature of the beast. If you’re invested in good companies then you shouldn’t be bothered by price fluctuations. If it’s going to make you lose sleep, then don’t go there.
Conversely, if you took all that energy you waste on worrying and spent it on taking control of other things in your life (like your spending), you’d come out a lot further ahead.
I think Charles Dickens said it best: “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
The surest way to a happy, healthy retirement (financially) is not spending more than you make and trying not to worry about things you can’t control.