By Michael E. Chadwick, CLU, ChFC, CFP®
Most people try to get the best “deal” on anything they buy. Whether you want to purchase a home, car, computer, office equipment, food or services you always want the best possible price. I don’t know anyone in their right mind who would want to pay more for something than they had to. This is one of the reasons the word “Sale” is so powerful in our society. Research has proven that the very term sale motivates the average person to spend money.
Think about the one thing you almost demand paying higher prices for! Is it gasoline? Is it health care? I think most of us are disgusted at the price of many things, including homes, autos, health care and education. We continue to buy them-some of them at a staggering pace regardless of their inflated prices. The one thing most people want to pay a higher price for is investments. If you invest $10,000 in something that is fundamentally sound and has an appraised value of more than your original investment and it goes up to $15,000 you’ll likely want to invest more, at a higher price. If you invested $10,000 in something and it went down to $7,000 you would likely want to sell. You should want to buy more now, at a lower price. If it was good enough for you to buy at the original price, shouldn’t it be even better to buy at a 30% discount? How much tuna fish would you buy this week if it were on sale for 30% off? This is not logical but when it comes to money people are very emotional about it and make the wrong decisions. Try to separate your emotion from your logic in making financial decisions, especially those involving large sums of money.
You should have the opposite instinct. When a fundamentally sound investment goes down, you should be inclined to buy more. When it goes up, you should be cautious and re-appraise the investment to see if value still exists in it. This is the only thing people want to pay a higher price for and it amazes me every day. Be sure to make this investment proportionately balanced with the rest of your portfolio and continues to fit with your asset allocation plan.
Michael E. Chadwick, CLU, ChFC, CFP® is principal of Chadwick Financial Advisors, 860-673-1942, email: firstname.lastname@example.org. Securities offered through Cambridge Investment Research Inc., a Broker/Dealer, Member NASD/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc. and Chadwick Financial Advisors are not affiliated.