Not knowing yourself – your numbers, projections, dependants, contingencies. 

What can be measured, can be managed. The aspect of ourselves relating to our preferences is qualitative in nature. But there is also a vital quantitative aspect, one that deals with our key numbers. This includes our income, expenses, savings, expected gains in the future, possible losses, i.e. contingencies, the value of our financial assets, etc. Once we have clarity on these numbers, we can logically run mathematical calculations on them to give us meaningful projections of the foreseeable future – strengths, weaknesses, opportunities, and threats (SWOT). Then we can start to fill the gaps and plug the holes, i.e. address any shortfalls we may face. Action steps: Set aside emergency fund. Be insured. Invest only what is “idle” monies.

Ignoring the risk of inflation.

Inflation is the rise in prices of consumer goods and services that we all use. Every progressive economy is designed such that the value of the currency tends to slowly lose value, i.e. its purchasing power, over time. It is not uncommon for each unit of money to be worth half it used to be 25 years prior. This means that our cash savings, unless invested wisely, are destined to be worth a lot less in the future. What’s more, sometimes, the rate of inflation can suddenly spike up, well beyond the ideal 2%-3% per annum. We need to be aware of this fact and prepare well to beat it. 

Changing your strategy mid-way due to sudden large gains or losses.

As human beings, we are quite influenced by all kinds of emotions. And our emotions, unless we have trained ourselves mentally for it, seem like they are not in our hands. One pair of sentiments that affect us strongly are that of “fear” and “greed”. These strike us when the circumstances around us change suddenly – and are also affected by what others around us are feeling and doing. In such times of euphoria, we have to guard against acting irrationally and abandoning our well-thought-through plans of action. For example, if the market tanks and there is a bear-run, we must be mindful not to get caught in the frenzy and sell off our assets cheap in order to “stop loss”. Indeed, if the assets are still valuable, we must have the fortitude to go against the tide and buy even more of it while others are selling their holdings at a low price.