April 13, 2017 Brian

Slot Machine Investing

Recently, I was in Las Vegas for a convention and I happened to walk through some of the casinos.  It appeared to me that some of the people playing the slot machines, poker tables, and other games of chance either looked rather depressed (perhaps they were losing?) or excited (perhaps they were winning?).  But what also struck me about either situation was that all of them had at least one thing in common as related to playing the game; namely, they had to decide – at some point – to either be in the game or get out of it.  If they had been losing, getting out likely meant locking in the losses.  And, conversely, if they had been winning, getting out meant erasing the possibility of winning even more.  Either way, a tough call.

Similarly, I have noticed that in the last 6-9 months, many people have asked me if they should be in the market now or out of it.  Bears tend to believe that we’re on the precipice of another bear market, and bulls tend to see continued growth.  And somewhere in between, lots of others sit on the sidelines with piles of cash, not knowing which way to move next.

What I like to point out to people is that investing doesn’t have to be a crap shoot, one where you are always trying to guess when to be in or out of the game.  Instead, a more reasonable strategy is one where a portion of your assets are always at work for you in a predictable, hopefully guaranteed way.  At Dumont Financial we call this strategy a “safe tank”, where growth above the rate of inflation and tax advantages, are expected.  Whatever you place in your “safe tank”, then, is not a gamble but a predictable investment.

When you have a strategy such as the “safe tank”, if you decide to also invest in more risky assets, you can do so with less concern, knowing that you can rely on other assets in case of a downturn.  This reduces the seeming importance of timing the market from a psychological perspective, allowing you to remain invested for the potential growth, and make decisions more on strategy than emotion.

In sum, then, here is our alternative investment approach: don’t play slots with your money, rather, create a strategy that allows you to capture the predictable growth you want and some of the upside potential, whenever that occurs.

These are the opinions of Brian S. Dumont and not necessarily those of Cambridge. They are for informational purposes only, and should not be construed or acted upon as individualized investment advice.

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