When you break it down the mistakes we make with money more times than not, are the result of bad decisions. Whether they result from a lack of discipline or lack of knowledge they can change the outcome of your financial future. I have outlined eight rules thus far and each of them will keep you from doing stupid things with your money if you adopt them to your personality and goals.

If you define what you want, it will keep you from buying or doing things that will create havoc to your portfolio and your lifestyle. For example the number one reason people fail financially is they procrastinate getting started. Thus, defining what you want (the why factor) will get you focused early and keep you on track to achieving your goals. Having defined goals will help you avoid debt, trading the wrong type of investments or creating financial stress. Doing stupid things with money is a direct result of not knowing what your want or having defined goals.

Over the year I have listened to stories and witnessed first hand the stupid things people have done with money. They can be as simple as buying too expensive of a house or car. The burden of the monthly payment keeps them from investing in their 401k plan to build a comfortable retirement. Borrowing money to send you kids to college because you spent the money on debt versus savings. Borrowing against your 401k plan buy a car or as a down payment on a home. My grandfather told me to only borrow money for appreciating assets. When you think about that there are very few reason then to borrow money. Debt is the second greatest reason people fail financially. Being 100% debt free, including your home, should be the goal. Think of the financial freedom you would have with no debt.

When I taught college mathematics the following was an exam:
“If John is 20 years old and saves $2000 per year ($166.66 per month) for 10 years then stops saving and let the money compound for 30 additional years, how much money will he accumulate over the 40 years assuming a 12% return on investment?”

“If Sam was the same age but waited 10 years to start saving, but then saved $2000 per year ($166.66 per month) for the next 30 years, would he accumulate more money than John assuming the same 12% return on investment?”

John would have accumulated $1,392,028 over the 40 year period.
Sam would would have accumulated $588,295 over the 40 year period.

Interestingly enough John would have only contributed $20,000 versus Sam’s $60,000. This shows the stupidity of procrastination. The eight wonder of the world is compound interest. The longer you have for money to compound the greater the results. Thus the problem we have in America with people not having enough money to retire when they reach the age of 65 or 70. The challenge we face is being smart with our money from the beginning not waiting until we are in our 40′s to start saving.

Some day I will write a book about stupid things smart people do with money. That is why step two was, learn before you start. KISS – Keep it so simple you can do it. The simpler the better when you begin. Education can be built upon and complexity added, but it is important to start simple so you can remain motivated to continue towards the goal. The old saying, by the inch it’s a cinch, by the yard it is hard applies to investing your money.

Trading Forex, options, derivatives, etc. are all legitimate ways to put money to work, but for many people it is a losing proposition. They believe they will get rich overnight. Investing was meant to be a longer term project. When you can leverage an investment 10, 20 or 50 times you are essentially gambling. In Vegas if you play a number on roulette and win they pay you 35 to 1. What are the odds you will pick one of the 38 options on the board? Don’t fool yourself into thinking that investing is easy. Don’t pretend the risk you take with leverage assets isn’t any more than buying a mutual fund. Investing is a science best learned over time and implemented in accordance with your risk tolerance in order to accomplish your goals over time. Each of the “Money Rules” we have discussed are designed to keep you from doing stupid things with your money. The discipline, the goals, the education, the risk management, the defined strategy, etc. are all done to allow you to rule your money versus allowing your money to rule you.

These nine steps all lead up to number ten, Lifestyle! If you would like to download the audio version of “Money Rules” simply go to home page and download it today, it’s free.

The final step to "Money Rules" is actually the most important from my view. It encapsulates the idea of why you are managing your money to start with. The purpose you want to rule your money to provide the lifestyle you have always dreamed. One day at a time, one goal at a time we can have and live our dreams.

Lifestyle is a choice. For example, there's the jet-setter who travels around the world buying expensive homes, and then there's the person who doesn't travel and lives a modest lifestyle. Think about this, if the modest guy wants to travel he may need to change a few things, but would he want to become a jet-setter? Or, if the jet-setter wants to slow down his travelling would he sell his expensive homes and move to the modest neighborhood? The answer to both questions is "no" because lifestyle is what makes you happy, and not what makes someone else happy. Each and every one of us has a different answer if asked what makes us happy. Therefore, we must manage our money in accordance to what we want, and not what someone else wants.

Money management is all about lifestyle. If you focus on the lifestyle you want, you will accumulate money much faster because you have a goal or destination. So, no matter how big or small your lifestyle goal may be, you must have one to live your dream. You must start with the goal (step one - what do you want?), or the whole process of managing your money becomes meaningless. Without the goal or the why, the how never really matters. If you want to take a cruise to Europe and it costs $15,000, how will you manage your money to accomplish the goal. The answer is as individual as the number on people on the planet. The key is defining the objective and then setting out to accomplish it.

To define the lifestyle you want think about what it is that makes you happy. Is it income for retirement, a new home, a new car, giving to charity or travelling? Whatever the mind can conceive and believe it can achieve. Steps One to Nine explain what you need to do to manage your money. Step Ten is the reward of your labor. You will be able to live the lifestyle you want with the money you have because you will be managing it in accordance with your goal. Don't ever feel pressure from peers or relatives. This is your goal not theirs. Stay focused or they can destroy what you are out to accomplish.

For example, in recent years the cost of housing went through the roof as banks lent everyone money to buy, buy, buy! People saw their neighbors and families moving to nicer neighborhoods because they qualified for jumbo low interest loans, so they jumped on the band wagon and followed them. Sadly, they soon learned they moved too quickly. Their dreams of living a better life were crushed when the housing market fell apart. The lesson learned is to make financial decisions based on you and you alone. Do not be swayed by what others are doing. Think about the family who stayed in the old neighborhood managing their money through all of this. They could probably buy a home beyond their wildest dreams in today's market! But, if it wasn't their goal then it isn't likely their goal now.

So, never give up. Whatever it is you want to do, you can do it if you take control and rule your money versus allowing your money to rule you. KISS (Keep it simple) and be happy living the lifestyle you choose to live!

If you would like to download the audio version of "Money Rules", log onto the home page of SectorExchange.com today.

People are frustrated from the last 10-12 years of lost wealth. Talking with a client yesterday it hit me, just how aggravated and disappointed people are relative to their wealth picture. I am not talking just about the stock market, but the total wealth picture relative to job, retirement savings, home values, income, and lifestyle. They are worried about the future and what it holds financially or if they can ever replace what they have lost. The more I thought about this, the more I realized how complete the change has been in the wealth of the average person living in America. We have all in some way experienced the impact of the events taking place. The dot bomb bubble crash in 2000-2002. The financial crisis of 2008. The real estate bubble of 2006-07. Unemployment climbing higher than 10% with the real number better than 15%. The government deficit ballooning to a staggering 13.2 trillion dollars. Higher taxes, and the list goes on.

We don't have the time or space to get into the nuances of all the repercussions of these and others, but we can take aim at how to repair our wealth and focus on repairing our lives both financially and spiritually. The following is and outline of how to repair you and start you on the road to repairing your lost wealth. It may not be the tradition way, but it has worked in helping clients, friends and acquaintances over the last ten years. Keep an open mind to the future and understand that "Genius is 1% inspiration and 99% perspiration." Thomas Edison.

Be honest with yourself. This is where the rubber meets the road. Having talked with and prayed with individuals who are alcoholics, the first step to recovery is honesty with yourself that you are an alcoholic. Be honest about your situation. Living in denial will not make it go away. Sit down compile a list of assets and liabilities (financial and personal). Determine what you can or cannot do. If you need counsel get it! Stop procrastinating and start fixing what is broken. I've had many discussions with individuals about bankruptcy, home foreclosure, etc. the last three years. It is not import to place blame, it is important to face the facts and take action versus the reality of the situation. Denail won't work.

Take responsibility. It's not the governments role to help you! Look for a hand up, not a hand out. This is your life, accept responsibility for the actions taken to put you in this situation. It will not change things to blame Wall Street, banks, greedy people or anyone else. Only you can change the future. If you have lost your job and can't find one in the field your are trained, find another one. I understand the challenge and anguish this puts on an individual, but you have to work towards a better future not complain about the present. If you need to re-educate yourself for today's work environment take the necessary steps and get started today. If you have a mortgage you can't afford - deal with it. Don't wait until the bank forecloses on the property. Sell it if you can, but take a proactive approach to dealing with the problem, see be honest above. The sooner you accept responsibility the sooner you will start to repair you lost wealth.

Eliminate debt - All of it. If we as Americans would live a debt free lifestyle, we would be more demanding on government to do the same. Start now eliminating all your debt. Do whatever it takes to be free of this anchor around your neck. Cars, homes, credit cards, etc. restructure the debt. Enough said.

Start saving again, honestly. Pay yourself first is the old adage and it still works. Put money in your 401k, start a saving account and add to it monthly, dollar cost average into mutual funds, save 10-15% of what you earn every month. You will be amazed at how much your mindset will change about life when you are saving money towards your future.

Invest based on your goals not winning the lottery. If you lost 30, 40 or 50% of you wealth in the recent correction, don't try to make it back over night. Take time to understand what happened and what you could have done differently. Many people lost money simply because they didn't pay attention to the warning signs. Some lost money because they took too much risk or did things they should have never done. Learn from the mistakes, write them down in a journal. The key now is to sit down and define your goals, develop a strategy to accomplish them based on your risk tolerance, and work towards them one day at a time with diligence. Invest in the haystack and if you find the needle is there all the better.

Count your blessing every day. It is not easy to start over nor is it easy to face the reality of our current situation, but if we don't start today, when will we start. Stop complaining and start counting your blessings. I am amazed every day by the people I meet, talk with and counsel, by their attitudes when they realize how blessed they are in life. When our focus shifts to what we don't have or lost, versus what we do have, and the opportunities in front of us, we loose sight of the blessings. Family, friends, jobs, home, health, etc. you truly are blessed! The greatest blessing you have is the ability to change whatever you don't like about you, your current situation or your lifestyle. Start now.

If we can help or lend a listening ear, or offer some helpful advise, call our office or send us and email. For the last 28 years our focus has been to teach people to help themselves. If you want a hand up we are glad to help, if you want a hand out... rethink your attitude.

Money management is difficult enough without adding complex trading strategies. For example, in a recent newsletter the following was posted, "I expect the market to decline today and therefore recommend October 40 calls on XYZ (changed for example purpose). I prefer this contract to gain liquidity for exiting the trade. This trade takes advantage of the two times leverage on the ETF plus the ten times leverage on the option, exactly what I want."  Even if these comments sound simple and innocent enough,  the challenge is with the complexity of the strategy, not to mention the level of risk!

Whatever happened to simple money management? How did we get to the point where mainstream investment advice took on this level of risk and expertise? I know professional traders on Wall Street that don't even manage money with this level of risk. Yet, there are more and more people attempting to put money to work based on this type of strategy. To make things worse,  the above article goes on to discuss putting 20% of the portfolio to work in this trade and then boasts the success of doing so intraday. I am not refuting the truth of this boast. I am addressing the sanity of such a trading strategy!

For most investors simple is better. The more you understand and trust your ability to manage money, the better you will be over time. Remember the story of the tortoise and the hare? If the tortoise could manage his money and earn 10% per year without losing money, in any given year,  then he is better off than hitting a home run on a twenty times leverage option play.  He'd also be less stressed. Leave that type of investing to the hare and keep your eye on the goal.

Why are investors interested in these types of trading strategies? The get rich quick mentality for one.  I believe investors have lost money over the last ten years and are looking for a way to catch up quickly. Taking more risk doesn't help that situation, in fact, it only exacerbates the problem. Let me make a suggestion. KEEP IT SIMPLE!

I am going to focus this weeks' comments on Simple Money Management for building a manageable portfolio. There are plenty of strategies available to manage money and the key is to keep it within your personality and goals. If you are a hare type investor, learn before you start running off with complex trading systems. For the rest of us, we will look at some simple strategies for managing money.

When I say simple that does not mean easy. Unfortunately, easy is not a word I associate with the process of managing your money. That is why simple works. As an example, setting a defined goal for your money is the starting point, and yet so few people spend enough time on the process. We are too excited about making money and we run right to the investment process. After all, the goal is to make money. Right? In its purest form the goal of investing is to make a return on the investment. However, without taking the time to determine the true goal of investing your money, you may go down the wrong path and not arrive at the appropriate destination.

One of the most common investment vehicles today is a 401k or IRA for retirement. Taking time to determine the goal is one of the least examined parts of putting money into one of these vehicles. I hear investors talk about the deferred taxation of the asset as the reason for investing, or because the company will match 50 cents on the dollar contributed. Those are benefits, not goals. The goal of a 401k or IRA is to accumulate a sum of money which will provide an income when you retire. If that matches your goal then you are on the right path. However, there are many other variables that go into the planning process and without them you may not accomplish all of your goals.

We will break this process down over the coming week or weeks to learn how to implement the process of simple money management. No one said the process would be easy, but we will learn how to keep it simple enough to implement. If you can implement it with confidence you will follow through and achieve your goals.

Yesterday was lesson in investor psychology. The confidence factor has been slipping the last six weeks as the economic data showed signs of slowing in the U.S. The consumer confidence number announced yesterday morning showed a drop from 62.8 to 52.9 leading to the selling. Some of the blame was given to China and the slowing in their economic data. It all comes down to confidence towards the  economy looking forward. Will it grow at a pace fast enough for earnings to grow along with stock prices?

The psychology lesson comes in understanding what makes investors react in unison on a day like yesterday. The catalyst was the news from China's LEI data in combination with the consumer confidence data in the U.S. They were not the cause, that honor goes to investor confidence. Without repeating all the data points over the last six weeks each one had a hand in chipping away at the confidence in future growth. Jobs report, same store sales, monthly sales, ISM manufacturing, etc. Each took a chip away until the investor finally decided the risk/reward relationship doesn't warrant being invested in stocks. The flight to quality begins with each chip and then accelerates the selling.

The Treasury bond yields gave another warning sign. The yields on the Treasury bond just eight weeks ago was at 4%. It has slowly declined on a flight to quality. The European worries started the movement and each data point has push more money in that direction. The flight to safety puts emphasis on the risk aversion by investors. Yesterday the 10 year bond fell to 2.96%, breaking below support. This is not a good sign looking forward for stocks. Psychologically the investor is throwing in the towel on risk.

The lesson is how investors migrate towards taking risk out of their portfolio. The data builds a case for the downside and in turn selling builds momentum. This is why stops keep you in line with the market direction. As the market drops the stops are hit and cash becomes your largest position. The downside trend will also begin to develop technically as lower low and lower highs are established. Support lines are broken and momentum gains in the selling. Thus, the ability to put money to work in being short stocks. Investor sentiment plays a big role in trend development and trend reversals.

Are we to conclude the investor is done and the downside is in control? No one knows for sure what will happen from this point forward, but we can see what we are looking at technically and fundamentally. First, technically support lines are the talk of the town. 1040 on the S&P 500 index has been on every billboard the last four weeks. We broke that level intraday yesterday. How the investor reacts to that will be see in the next couple of trading days. Thus, like everyone, we will watch to confirm the break below this level if the momentum continues lower. It may bounce and then retest this level on a news event in the future. I am watching the jobs report on Friday. Second, fundamentally the economic data is putting a big question mark around the outlook for second quarter earnings. More importantly the outlook for the second half of the year is being revised lower for growth. GDP is expected to be between 1-1.6% growth and some think that is optimistic. The impact the earnings will be an issue as revisions are made and pessimism creeps into the financial markets. Not the best of scenarios relative to stock growth.

As you can see the market data and the investor go hand in hand in determining direction of the market. Our job is to pay attention, listen to both the data and the investor and invest accordingly. We have talked many times in the past on the importance of a defined entry (strategy), a defined stop (risk management) and a define target (goal). Sound money management takes into account the probability of being right or wrong on every position in your portfolio.

This promises to be an interesting period looking forward, but the bottom line is - protect your assets. Risk management is the priority.

When managing money there are times you feel extremely in tune with the market and there are times you wonder if you know anything about the market. Sounds like so many other things in life - relationships, sports, an algebra exam or your kids. What changes from day to day or week to week? Simply put, our focus. Mentally we become a micro or macro manager based on our emotional focus.

I played competitive baseball until I was 21 years old. On the days I went 4 for 4 hitting, it was as if I knew what pitch would be thrown and the baseball looked like a grapefruit. Why? In sports they call it being in the zone. I was in tune with what I wanted to accomplish and what I expected from the event. I was in tune mentally and physically with the game. There were other days where my coach would tell me, "you couldn't hit a bull in the butt with a scoop shovel! Get your head in the game!" The first part of the statement was to get my attention, the second was to explain what I was doing wrong. My head was not in the game it was focused on other things or over analyzing the process of hitting. Otherwise known as thinking too much versus relaxing and putting myself back in the zone. Investing is no different!

Getting in the zone relative to investing your money is no different than playing a sport or your relationship with your spouse. It takes time and effort to learn, and you have to make a conscious decision of what outcome you expect. I have never talked to an investor who put money into the market expecting to lose. I have spoken with plenty who, from experience, have come to expect the result of losing money. Mental attitude towards anything is more than half the battle. Having a passion for something will impact the outcome tremendously.

Think about these comments, "I am just not good at math!", "I am just not good at relationships!", "I don't understand why my children don't listen to me?", "If you want to see a stock drop in price, just let me buy it!" etc, etc, etc.  I have learned to call these statements, losers limp. They are excuses as to why we don't do well at certain things. The mind is the most power tool ever created. "Whatever the mind can conceive and believe, it can achieve." Napoleon Hill. "if you think you can or you think you can't, you are right." Henry Ford.

Learning to invest your money isn't easy and I believe the hardest part is the four inches between your ears. We can study and learn the facts and figures about investing, but learning how to deal with the mental aspects is a completely different process. The most successful investors aren't the ones who get rich from a particular investment, it is those who learn to deal with the mental aspects of managing money. Over the long term they are winners because they learn to manage their money based on their mindset, which is turn accomplishes their financial goals. The reason we invest money is to accomplish a goal, not see who can accumulate the most money. And that is an entirely different topic for another time.

Why am I talking about this? The market has been in a 12 month period that tests investor resolve. No matter what strategy you deploy, when the market trades sideways, you will be tested mentally. As I stated earlier, some days you go to the ballpark and go 4 for 4 and there are days you are 0 for 4. The difference is the mindset you have when you walk on the field. Monday the S&P 500 index broke above resistance and it spent the next three days moving back below that point. This is where the mind games start. Is he going to throw a fast ball of change up? Only the pitcher and catcher know for sure. If you guess right you are hero, if you guess wrong you are walking back to the dugout sputtering. If you put money to work based on a specific strategy, let it play out. Don't second guess yourself, have confidence in yourself. If it doesn't work out review the process. If you did everything right, move on. Dwelling on it will only make you a raging neurotic. Next! There are plenty of opportunities. In professional baseball if you hit .300 you are paid millions. That means 2 out of 3 three times you were not successful. You will have losers no matter how good your strategy or regardless of what you do! Put them behind you and move forward. Put yourself back in the zone of winning and keeping moving forward.

Set your goals, define your strategy and remain disciplined. Investing is a process, take it one day at a time, one investment at at time, and remain focused on your goals, not the market.

Emotions are part of the learning process. Unfortunately, they play a bigger role than we sometimes desire. As with most things in life, dealing with the psychology behind trading becomes part of the process. To create a clear mental image, picture yourself learning to ride a bike. The emotions relative to falling outweighed the logic of balance and speed in the beginning. Through instruction, trial and error, and a few skinned knees we learned how to combine balance with speed to keep from falling. Over time it became second nature to ride the bike. We had to learn how to put our emotions aside in order to ride the bike successfully. What I find interesting about the process is once we learn, the emotions become secondary to the process. They never really leave. They are just subdued by the experience of learning to ride the bike. However, if we hit a bump or try something different the fear will surface again, but this time we have learned to deal with them according to experience. We have all learned the that education plays a vital role in any process. Remember, to keep it simple when starting and then layer on complexity.

Below is a graphic of the emotional cycle relative to investing. It shows the process we go through as investors when we put our money at risk in the stock market. Thus, the term emotional roller coaster. The ups and downs we experience emotionally never seem to change relative to the market cycles. However, we can learn to manage the emotions with a clear understanding of the process. We also learn to deal with the emotions by eliminating false assumptions. We have seen plenty written concerning buy and hold investing. The process made popular during the 80's and 90's made the assumption that corrections were temporary and by holding through these correction periods the markets would bounce back in time. However, since 2000 the S&P 500 index has lost money over the ten plus years. Thus, the rebirth of emotions relative to holding investments over the long term. As stated above, education plays an important role in the process. Ask yourself this question on a regular basis, "If what I always thought to be true wasn't, when would I want to know about it?' Continuing education is key to learning how to deal with your emotions relative to the strategy you implement for investing your money. The more risk you subject yourself and your money to, the more emotions you will experience and combat on a regular basis. Choose a strategy that is compatible with your emotional well being.

Fear, hope and greed are the three most common emotions investors deal with. Understanding when they are most likely to attack is the key to dealing with them. The chart above shows fear is most common as the market moves lower and it escalates as the market drops. You can deal with fear by setting stops and establishing a worst case scenario for your money. Greed is most common because the higher the market goes it fosters the belief we will become wealthy overnight. This can be dealt with in the same manner by laddering or trailing your stops to permit your profits to run. But they must take you out of the position should the market turn lower, thus escaping the greed of holding in hopes it will move higher again. This is all part of the process of building and implementing a strategy that fits your personality and accomplishes your goals as an investor.

I have taught a workshop, "Taking the Fear Out of Investing" for more than 20 years and the principles still apply today. The fear factor will step in when you least expect it if you don't understand the emotion. To quote Edmund Burke, "No passion so effectively robs the mind of all its power of acting and reasoning as fear." When your money is at risk, fear becomes the greatest enemy to the process of investing. This is where planning becomes vital and takes over versus emotions. When you have a strategy for investing, you have a defined entry point, a defined exit point and a defined target. Why? For exactly this reason, managed emotions to stay off the roller coaster.

This is called a proactive approach to managing your money versus reactive. When the markets move higher you can deal with the, "I am going to miss out on the gain" emotions or greed. When the market is moving lower you can deal with the, "it will bounce I'll hold until I break even" emotion or fear of loss. The process of managing your emotions is an integral part of money management. Take the time to learn how to manage both and you will be successful.

With the broad market taking a pause for a commercial break, it provides the opportunity to survey the landscape and make adjustments. The last two weeks have been a whirlwind of information, worries and speculation. The day to day hot spots change rapidly as the number of events to address continues to grow. For example, this time last week the debt crisis in Europe was the topic of choice, today it is the renewal of the tax cuts. The news is pushing money from sector to sector as investors attempt to chase and capture the sector momentum.

The last week has seen a rise in the financial stocks. We discussed this yesterday relative to the banks pushing financials higher. The banking sector has gained more than 12% and looks to push even higher with money flow gaining momentum. The sector has lagged the broad market, but is now playing catch up. We have added plays in the sector, but with the quick gains managing the risk becomes a priority.

Commodities such as crude have paused following a similar run to the upside. United States Crude Oil ETF (USO) hit some resistance at $38.50. With an entry at $35.50 and a reasonable gain over two weeks protecting against the downside is necessary. The big question mark revolves around the outlook for crude to move higher. If you believe their is more room to the upside set you stop wider and hang on, if you believe the run is done for the short term set your stop tighter. If you set a target at the November high take half off and let the other half run with a stop at $36.75. The point being manage the risk of the market relative to the position and the current risk. Nobody knows the future and risk management is about the present.

Semiconductors have been one of the primary leaders for the market. iShares Semiconductor ETF (SOXX) has continued to be in a solid uptrend off the August lows. The gain of better than 35% has been positive for any portfolio. Measure the risk relative to the current market environment and the probable outlook for the sector. Adjust your stop accordingly. The 30 day moving average has been a trendline for the sector and would be a good stop level for the position based on the current outlook. Again the focus is managing your risk actively now, not when the market corrects.

Energy is another sector making solid gains of the low in August. We took a play in iShares Oil Equipment and Services (IEZ). We have experience a nice gain in the play and believe the upside to the sector is still positive. However, with the current pause we see the potential pullback to support as a possibility, but what if the downside accelerates based on news, speculation or data? The 30 day moving average has provided a trendline for the sector and based on the positive outlook is a reasonable stop currently.

Risk management is a priority when it comes to successful money management. Every position in your portfolio demand that you manage the risk in accordance with today's knowledge and foresight. Like all money management decisions, you will not be right 100% of the time, but you will sleep better and you will have control over your portfolio risk. Take the pause in the market as an opportunity to evaluate the risk level of your current portfolio and each position.

Too often accepting responsibility for you money isn't easy to do. Over the years I have joked with investors that the number one reason they hire an advisor, is to have someone to blame. Take the time to think through this process. How much time do you spend involved in the process of managing your money? How often to you meet with your advisor? Do you understand the strategy by which you are managing your money?

First you have to make a decision to accept the responsibility of your money. In talking with investors over the last 28 years this concept of responsibility has become a decision process we walk people through before helping them manage money. The importance of accepting and agreeing to managing your money is vital in the process. This may sound like semantics, but you would be amazed at how many people want to blame others versus accepting the task of successful money management.

It is easy to blame the market or economy for the losing money. The reality is you can lose money in a good market as well as a bad one. Equally you can lose money in a good economy as well as a bad. Stop worrying about the market, economy or whatever else you can blame, the focus has to be on your money and the management strategy you implement.

We avoid responsibility because we lack confidence in ourselves. This is a direct response to not have a plan. If you define what you want. Build a discipline strategy for accomplishing the goal. Learn, practice and rehearse the process. You will have the confidence you need to manage your money!

Don't get overwhelmed by the magnitude of the task, KISS! Keep it simple to start and learn one day at a time. I find it very much like riding a bike, driving a car or playing a sport - learn, practice and rehearse and you will be riding, driving and playing the way you want to get what you want out of your money.

This all applies to the process buying a house, paying for college education, traveling around the world or any other goal you have for money. Learn how to finance a home and you won't have to worry about the mortgage broker selling you on the wrong loan. Learn about options versus following a newsletter. Whatever you want that is related to money is easy enough to learn and implement relative to your goals and risk tolerance.

Money ranks and one of the top three most important things in an individuals life. God, Family & Money are the three top rated in surveys. The priority is different for everyone, but one thing is for certain, money plays a key role in every one's life. Isn't it time we learn to rule our money versus letting our money rule us? Accept the responsibility - IT's Your Money - Manage IT!

After more than 28 years of investing personally and professionally, I am of the opinion that risk management is single handed the most important component of the investment process. Most investors learn about market risk the hard way - they lose money. If we take the time to learn how to manage risk relative to each position in our portfolio we will be far ahead of the game.

What is risk management? It is the process of managing the risk of money in relationship to the market. Simply put - it is money management. When money management is discussed risk is one of the many elements addressed. From my perspective it is the embodiment of money management, the foundation on which you build a portfolio of stock, bonds and other investments and the process by which it is managed until the asset is sold. Taking on too much risk by position or portfolio is the downfall of many investors.

In Step Two we discussed learning before you invest. This is a case and point of learning about risk relative to the investment you select as well as the strategy you implement. How do we learn to manage risk? To borrow again from Rule Two - KISS! Keep it simple. Start simple so you can learn the variations of risk and then devise a strategy to protect your principle invested.

For the sake of simplicity let's return to the index ETFs (Exchange Traded Funds). For this example we will use SPY, SPDRs S&P 500 Index ETF. This fund corresponds to the index and in fact is invested in all the stocks in the index. The fund trades intraday like a stock under the symbol SPY. Thus, your risk of owning SPY is equivalent to owning the index itself. If you put money to work in this fund how would you manage the risk? STOPS.

It is amazing how many investors do not use stops to protect against the downside risk of the market. As many of you are aware, a stop is nothing more than a standing order to sell, in this case SPY, if it falls below a specific price. Why would you want to have this order in place? Take a moment and think about what emotions you go through when the stock market is declining in value. Anxiety? Fear? Panic? They may all over time describe the feeling you experience during a correction. Thus, the reason for using stops; taking emotions out of the equation or decision process.

Two things come to mind relative to losing money. First, disgust and depression as no one likes to lose money. Second, psychological brain damage as many will dwell on the loss. Here in lies the challenge for most investors; getting over the damage done from losing money. This is where having a defined strategy for managing the process of investing is important. Part of that strategy is a defined stop on every position within your portfolio. The stop is determined at the point of purchase based on the strategy first and on the amount of money you are willing to risk second. Thus, a stop allows you to take the unknown and make it known. Defining your loss prior to starting will give you clarity and focus to each position and remove some or all of the emotions at the defined exit point.

We have heard the saying, 'let your profits run and cut your losses'.  Stops put in place are a method or strategy to allow you to let your profits run as you ladder your stop up as the price rises. In the same way it cuts the losses on your losers and keeps you from holding them too long on the way down. Stops are a great risk management tool and one well worth time to learn how to use. The chart below is an example of how to manage your stops on a position letting the profit run until which time the stop is hit. Invest the time to learn how to use stops and truly learn to manage your money!