Perpendiculous Programming, Personal Finance, and Personal musings

2008.09.18

(ir)rational investing

Filed under: Personal Finance — cwright @ 11:03 am

Late last night, I almost lost it. I almost panicked. And worse, I almost changed the plan. Very dangerous that. I can finally see how emotional investing must be. Crazy stuff, that.

Reading about Lehman Brothers’ failure, AIG’s $85bn government bailout, and how they’re interconnected, made me worry. WaMu’s epic struggle didn’t provide any comfort. The government takeover of Freddie Mac and Fannie Mae was another indicator of Really Bad Financial Times Ahead. What if I have underweighted bonds (which are stable through periods like this)? Should I just buy those from now on? What can be done about the vicious inflation that’s bound to take place over the next few years? Should I invest heavily overseas as a shelter against that? (I’m already ~50% international for diversity)

But wait a minute. I’m not actually a holder of LEH or AIG. Nor the mortgage lenders. My savings is at WaMu, but it’s FDIC insured, so it’s no risk. While I’ve been hit by the downturn (as almost everyone has, especially passive investors who seek to track the market), it hasn’t actually been a complete disaster. And history has shown reliable resilience, even in terrible downturns. The best (and most rational) thing to do now, of course, is hold the course. Keep my core asset allocation stable.

I think this short panic happened internally not because I’m worried about losing my investments, but because I started to see how interconnected the failures could be, and how I’m largely unable to have any noticeable impact on the national economy (much less the world economy), outside of the software that I write, and the things that I buy. For me, feeling powerless goes with feeling hopeless it seems. That’s good to know when investing, so I can desensitize myself against that. No worries now 🙂

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