To scratch that itch
TLDR: What to do when you cannot do nothing
When it comes to investing - 5% is intellect and 95% is temperament. I had drawn parallels between meditation and investing in the last post and how it is very difficult to “Do Nothing” in both cases.
I have no shame in admitting that i have not reached that zen like state where you do nothing.
Day in and day out we are bombarded with news about COVID 19 and the impact on the economy. It is very difficult to isolate ourself in this hyper connected work and live in a cave. The temptation to do something is high.
So how do you scratch that itch?
Create a goof around fund
I am serious. If you have gone through my financial planning blog posts and the steps involved in getting there, you know that planning is the one of the key steps. You will have created many goals with different time frames that you want to achieve.
You should have tailored your portfolio according to the goals. So after going through a lot of pains to create this plan, why would you disturb it because of volatility or news from the market?
That is where you need a “goof around” fund.
Much money you would put into this fund?
Any amount that you don’t mind losing completely can go into this fund. For some people it can be a few thousands for others it can be hundreds of thousands. Only you can answer this question.
My general ball park would be less than 1% of your portfolio (not including your primary residence). If you can make do with a smaller sum more power to you.
What do I do when I lose all this money?
You had fun while it lasted, you bought some cryptos, explored futures and options, or burnt your fingers in trading currency. Whatever be that itch that you wanted to scratch to enjoy that excitement. You always knew that this is funny money that you didn’t mind losing
What if I got lucky and I managed to double my money?
Fantastic, your risky play did pan out. You are now the guru when it comes to trading options. Not quite. now you have twice the amount of money to that you can lose. No need to book profits keep the money and play some more if you like\
I was unlucky last time, but I can do better next time
You have a gambling problem, but isn’t it this the whole point of the fund. Sure, no problem. Only replenish this fund once a year and again only the amount that you don’t mind losing. If you managed to burn through this “goof around” fund by end of Jan. Then tough luck wait till 2021 to replenish.
Do not ever replenish from your emergency fund or from any of your regular goals
Conclusion
This funny money can be a stress reliever and will help satiate the inner gambler in all of us to some extent. But do take steps to ensure that it does not take over and disrupt your carefully planned goals and does not impact your portfolio.
Good luck and Happy investing
#MyFatFIRE
