Healthy and balanced, but in order to be consistent and disciplined, it certainly helps if you enjoy it.
You don’t make decisions on what to eat based only on the cost and nutritional value of the meal. You also consider taste, preference, flavour, and what you “feel like at the time”. At To the pound, we think it’s ok to approach investing in a similar way. It’s not all about risk and return, but about your preferences, your biases, and your tastes. As long as you remain balanced overall, it’s ok not to be precision-perfect all of the time.
For example, if your portfolio is currently invested in a bunch of diversified equityfunds tracking the S&P500 and the FTSE100, then you’ve probably got a pretty sensible starting point. If you want to invest your next wod of monthly savings in something that interests you or excites you, then go for it. As long as it’s still only a small (1-5%) portion of your overall portfolio, we have no qualms with that at To the pound. In fact, if it keeps you interested, we think it will keep you consistent and disciplined, such that you’re more likely to meet your goals in the end. Investing a chunk of your portfolio in something a bit lively (and probably a bit risky) is better than not investing it at all (e.g., spending it at the pub instead).
This is in keeping with our concept of undiversifying. Starting with a sensible, balanced, diversified portfolio, you can allow yourself some indulgences that take your portfolio away from perfectly well behaved. But it’s important you do it this way than doing it the other way round, where you start with your indulgences and then battle to try and get your house in order. The latter makes for a hectic, disorganised portfolio that is unlikely to meet your goals, and where you rely too heavily on luck and not enough on skill (yes, consistency and discipline are skills, and elusive ones at that).
We hope the analogy makes sense to you. If you’d rather, think of a choir: normally in perfect sync, but the odd solo can add a bit of excitement. Or if you don’t like music or eating, then think of a football team: you need a bunch of different players playing different roles, but it’s also ok to have a couple of stars that really get the crowd going.
Just remember to be balanced: you couldn’t live off just broccoli, it’s not a choir if your solo does everything, and you can’t win a football match with just a striker, however good they are.
We refer to lots of linked posts in this post. We hope that by following the links you can answer any questions you might have, but if anything is unclear in this post, or you have any questions relating to anything investment-related, please submit comments or questions in the section below and we’ll do our best to answer them.
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