Your cousin has an inside tip on the next hot biotech drug. Your brother-in-law will not stop bragging about his investment in a new crypto-currency that will “totally disrupt Bitcoin.” Your uncle insists gold is still the best investment. We all have had similar encounters at holiday parties, and not much success has been generated from this banter. Investing success is earned through discipline, patience, and not chasing the trends and tips shared by novices over a cup of eggnog.
Sound investing advice, in general, does not inspire engaging conversation. Warren Buffett, the patron saint of investors, has often counseled the key to successful investing is minimizing mistakes. Want to be the life of the party without perpetuating poor investing behavior? Mention your investment in Netflix is up more than 50% year-to-date and deftly transition the conversation to “Stranger Things” or that mesmerizing documentary you cannot put out of your mind. My go-to move is to bring a card game like “Cards Against Humanity” or “What do you Meme,” and an impromptu game of charades is another means to avoid speculative investing conversation (pro tip: use these ideas escape controversial political discussion, too).
If you cannot avoid a conversation about speculative investments, smile, nod, and remember the following:
- Invest in sound businesses with an economic advantage over the competition; don’t over-pay; buy when others are fearful, but sell when others are greedy.
- Before individual investments are selected, investors would be wise to create a personal budget that allows for expected expenses for the next five years and contingencies for unexpected events.
- Funds allocated to planned life events within three years should remain in cash;
- Funds reserved for events three to five years away should not be invested in assets more volatile than short-term government bonds;
- Equities are appropriate investment vehicles for long-term goals like retirement or your toddler’s college fund (five-plus years hence).
- Your portfolio’s asset allocation must be designed based on your ability to stay the course during volatile market cycles; if you cannot withstand the urge to liquidate after a twenty percent decline, your appropriate portfolio targets should be more conservative than Buffett’s standard 90-10 stock-cash portfolio.
The way to win the holiday party investing banter is to maintain your investing discipline. Only indulge these whims if your portfolio has a manageable allocation for speculative investments. So drink your eggnog, smile politely and remember success results from patience, planning, and discipline, not an idea you uncle shared after two too many.