There are two formulas that are incredibly important when considering financial decisions. The first is TR (Total Return) = G (Growth) + I (Income). Total Return is something that we are all striving for. It is comprised of 2 different numbers, Income PLUS Growth. I would like to challenge you to look at your investment account statements and look for an “income” column. This will tell you how much dividends and/or interest your investments are producing for you. If you don’t find an “income” column, this may be an indication that your investments are natural more aggressive by nature. This is represented by the “Growth” in our equation. Growth type investments may provide a better upside at times but unfortunately, sometimes that “G” turns into an “L” or a loss.
There is another formula I believe is impactful to our lives… E (Event) + R (Reaction) = O (Outcome). This is especially important financially as well. If we are investing according to the major events that typically occur in the Stock Market, our reaction to those events is what determines our outcome. If we are spending our days reacting to the market emotionally and with a “what’s going to happen next” mentality, well that makes for a very erratic outcome with your investments. However, if you are naturally invested in non-stock market tools such as bonds and bond-like instruments, you are no longer sitting on the sidelines waiting for the other shoe to drop in the market. You have instead shifted your reaction to the events in the market and therefore created a much more consistent investment strategy.
Please send comments and questions to ajohnston@soundincomestrategies.com.
