Strategic thinking isn’t only useful in games, but can help increase your assets. Carefully applying the skills of a chess grandmaster to your finances can yield benefits.
Evaluate your current position
First things grandmasters do is evaluate their position. Look at the entire board before considering your next move. While the goal of a chess game is clear, your financial goals (retirement, leaving an inheritance, etc.) may not be as clear cut. Therefore it is crucial to take stock of what you have (all your assets and liabilities, both now and in the future) and determine how you can best utilize them to achieve your end game. If your assets need to grow significantly, ultra-conservative investments may not be the best place for your funds. The first step in creating a strategy is to analyze all your pieces and see how they can move.
Evaluate your risk tolerance
While taking risks may let you win, risking money entails the danger that you may lose your money. Is this something you are comfortable with? High risk may mean that you lose real money. Will you be able to sleep at night if the market declines and you lose 10%, 20% or 30% of your portfolio?
Conversely, investing in very safe investments carries the risk of your money losing real value as it won’t grow with inflation. Determining your risk tolerance is a balancing act between fear and greed. What would your reaction be if you lost money through investments that go sour or through solid investments which can’t keep pace with inflation?
Strategic thinking
Thinking strategically helps you utilize your investments so they protect each other. Evaluate every position you hold to ensure it furthers your goal. Maintain flexibility to re-evaluate your strategy so it remains relevant. Then, you may be able to “checkmate” your obstacles and accumulate the assets to retire like a king.
Douglas Goldstein, CFP®, is an investment advisor and author of Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing.
Douglas Goldstein, CFP®, is the Director of Profile Investment Service, Ltd., which specializes in helping people who live in Israel with their US dollar assets and American investment and retirement accounts. He helps olim meet their financial goals through asset allocation, financial planning, and using money managers.
Published July 7, 2014.