Staying In No Man's Land - Or How You Lose Money When You Don't Have Goals

Staying In No Man's Land - Or How You Lose Money When You Don't Have Goals. No man's land is an old term originally used for a place where no one wants to go. But more importantly, it's a term used to describe where someone shouldn't be. And the reason I pointed that out is that it's actually very applicable in our personal finances. When we invest without a clear goal, we end up making decisions that aren't that great.
No man's land is an old term originally used for a place where no one wants to go. It was actually first used around the time of the first world war. However, that's almost beside the point.

I heard it mostly used in the NBA. This isn't a basketball blog, but if you're willing to suffer through some babbling there's actually a point.

You see, on defense, the defender is supposed to either stay in front of the guy he's assigned to defend or he's helping a teammate double team someone else. Sometimes, when a player isn't surely exactly what to do, he tries to do both.

He'll stay in between his guy and the one he's trying to help out with. But in doing so he's too far away from either one to really make a difference. And so both guys are open and free to move. He is in no man's land.

On a bigger perspective the same concept can be applied to teams. Teams that are in contention for a championship generally have great players and further attract good players who want to win - sometimes even playing for them at a lower salary. So it's almost a virtuous cycle.

Teams that lose a lot on the other hand, have increased chances of picking a great player in the NBA draft, which then increases their chances of being able to contend.

However, the teams in between, the ones that don't compete for championships but don't lose a lot either can also be described as staying in no man's land. They typically have no great players, they don't lose enough to draft one, and they typically have very little chance of attracting one. They end up stuck where they are - on the mediocrity treadmill; no man's land.

And the reason I pointed that out is that it's actually very applicable in our personal finances.

Staying In No Man's Land - Or How You Lose Money When You Don't Have Goals. No man's land is an old term originally used for a place where no one wants to go. But more importantly, it's a term used to describe where someone shouldn't be. And the reason I pointed that out is that it's actually very applicable in our personal finances. When we invest without a clear goal, we end up making decisions that aren't that great.
For example, take rent-to-own schemes. I loved the idea when I first heard it. However, digging deeper into it, sometimes it isn't that great.

Why? Because sometimes, if you take the time to scout the area you might notice that the rent can be higher than normal. And it's justifiable because you'll eventually own the place, right?

But you don't get to own after renting for just a few months. There can be a set amount or time period before you own it. And that's where it can get interesting.

Depending on the rent or timeframe, the total money you would've shelled out might be more than what you would've paid overall if you instead availed of a competitive bank loan.

Worse, if you don't stay long enough to meet the terms, and the rent was higher than market price, then you basically threw that extra money out.

I'm not saying it's a bad deal. But you may have saved money if you knew you weren't staying long or if you really wanted to buy it.

Another thing (though I admit I'm biased against them) are VULs. If you want insurance, term life is more affordable. If you want an investment, mutual funds and UITFs might perform better. And the whole amount (including the investment component) is only estate-tax free only if you get it after dying. And there are usually surcharges for withdrawing it earlier than 5 years.

So you have to ask yourself, do you really want it as an insurance? Or did the investment component draw you in? If the investment attracted you, what are you going to use it for? If it's for anything other than after-death expenses, you may want to consider a different investment vehicle.

But then choosing an investment has it's own pitfalls if you don't have goals. Since last year, whenever I read a would-be investor ask where he should place his money, multiple people reply about stocks and equity funds. It's a bull run, so that's understandable.

But it's also a risk. Bull markets don't go on forever and there are dips and bear runs even in a bull market. There's still a real chance inexperience and anxiety could cause someone to lose money in a bull market.

Like in the middle of this year. Anyone who invested in January hoping to ride the bull market, had a great (and very profitable) ride until the bear run set in and wiped out all gains and possibly even caused a paper loss.

But new investors who were just thinking of profits might've gotten scared and withdrew around the time it was about to wipe out all gains. So they practically waited roughly six months to gain almost nothing; because they weren't sure what they really wanted.

Staying In No Man's Land - Or How You Lose Money When You Don't Have Goals. No man's land is an old term originally used for a place where no one wants to go. But more importantly, it's a term used to describe where someone shouldn't be. And the reason I pointed that out is that it's actually very applicable in our personal finances. When we invest without a clear goal, we end up making decisions that aren't that great.
And of course, the lack of goals can also cause a problem when investing directly in stocks. For example, you did your fundamental analysis and you know you've found a great company. You've checked the charts and the technical analysis says it's just bottomed, and now is a good time to buy. So you buy, simple right?

But then what? Sure it's recession-proof and cheap, you'll make money. But what's the money for? It'll keep going up until it the market turns bearish. If you wait too long you lose a part (maybe a big part) of your profits. But if you sell too soon you're stuck with a profit that seems small in comparison to what you could've had.

But that wouldn't be a problem if you knew what it was for, right? If you gained enough for your goal then you'd be happy no matter what.

Invest for a reason, know your goal.



Enter your email address below get your free subscription and receive informative posts like this.

You can also like me on Facebook, circle me on Google+, or follow me Twitter @thePFApprentice.



photo credit: Tim Green aka atoach via photopin cc
photo credit: Julia Manzerova via photopin cc
photo credit: mikerastiello via photopin cc

2 comments:

  1. Good post. The part where you talked about goals is the same thing i heard from someone over the weekend. People will always ask "Saan ba maganda mag-invest" but if you ask them what's is the goal for that investment, they cannot answer.

    The good investment is the one that matches the goal.

    P.S. I hope you don't mind if i share the link to my site http://www.toncabiao.blogspot.com

    ReplyDelete
    Replies
    1. Hi Ton! Yeah, and the worst part is that even when people mention such a response to them it doesn't always sink in. "Being rich" is already a goal, at least to them... It is, but just not functional enough...

      Thanks for dropping by.

      Delete