Creating Your Investment Dashboard

Navigating the financial markets can be difficult in this volatile environment we’ve experienced in recent years, which is why it is more important than ever to have a financial dashboard to ensure you do not drive off a cliff. If investors do not have the time or focus to drive their financial future, then perhaps for the safety of themselves and others, they may consider riding a bus or hiring a chauffeur. For those committed to handling their own finances, the road may become rocky, so here are some important factors to monitor on your financial dashboard:

1)      Fundamental Direction: Before you decide on an investment destination, it is important to know whether trends are accelerating (speeding up) or deteriorating (slowing down) – see also Forecasting – Trend Analysis. There is a broadly diversified global menu of investment options and asset classes, and if your hands are on the wheel, you need to determine which roads (investments) are providing the best driving conditions. If your investments are out of control, you may get lost or end up in a ditch.

2)      Are You Going the Speed limit? Nobody wants to get a costly speeding ticket, therefore assessing valuation metrics (i.e., risk) on your dashboard is a requirement. If you are speeding along the highway at a 100 miles per hour in an expensive stock (e.g., trading at a 50x+ Price/Earnings multiple), then there is little room for error.When traveling that fast the price of a speeding ticket becomes irrelevant, because hitting a pothole at those speeds (valuation) can be much more costly to your portfolio…irreparable damage.

3)      Temperature Outside:  There’s a huge difference between driving in the icy-cold snow and 100 degree heat. Each environment provides its own challenges. The same principle applies to the financial markets. On occasion, sentiment can become red hot, forcing heightened caution, whereas during other periods, chilling fear can scare everyone else off the roads, leaving clear sailing ahead. Correctly understanding the emotional temperature of financial markets is paramount.