I came across this article titled “The 10 Rules You Need to Know Before Investing in ETFs.”
While most are well known, I was surprised to see rule # 8 “Have an Exit Strategy;”
What would cause you to change your mind and re-evaluate your position? Is the reason you purchased the ETF still valid? Have the fundamentals changed? Have the technicals changed? “Consider the use of a stop loss, even a mental one that causes you to re-evaluate your holding,” says Jergovic.
I applaud this writer for including one of the most elemental safety nets of investing in this article.
Here’s rule # 10, which I want to hone in on a little bit:
Separate Your Serious Money From Your “Ice Cream Money.” Know the type of money you are investing in ETFs. Never speculate with serious money you cannot afford to lose, says Jergovic. “When investors speculate with serious money and invest long-term with ice cream money, meeting objectives becomes problematic.”
This is a very important topic, which I have discussed many times, but not written about. There are some investors with the urge to do big things, like the equivalent of hitting a home run in the investment arena.
Actually, I have clients like that. They have divided their money into two pots; a small one, which is called their play money and a larger one, which I manage, which I refer to as their serious money.
With that small pot, they do the wildest things in the market you could ever imagine, hoping for a big hit, while at the same time satisfying their gambling instinct.
There is nothing wrong with that if you are so inclined. Their serious money is invested conservatively with clearly defined risk as per the trend tracking principles.
Some investors I know prefer doing their own thing and are managing both pots. Therein lies the danger in that the goals for each can become blurred and overlapping with the result that a clear separation can’t be maintained.
If do your own investing, and you are facing this situation, be absolutely clear as to which account you are dealing with so that you never become tempted to do crazy things with your serious money.