My daughters wanted to take me to the movies the other day, to see “The Avengers,” the latest superhero flick.
I tried to put them off, saying it’s not really my kind of movie, but then my oldest daughter Thomson told me that I’d find a personal-finance angle in it. Financial crimes are a bit mundane for superheroes, but she had seen the movie once already, so I figured maybe she knew something.
Nope, she was pulling my leg; she was laughing about it during the previews as I pulled out a notepad, just in case I needed it for work.
Thankfully, I enjoyed the movie much more than expected, but there was no way I was going to let my daughter think she had gotten the best of me.
So by the time she asked how I liked the movie, I was prepared, and thanked her for convincing me to go because the personal-finance message of the movie is so clear:
Invest like a superhero.
Think about it: The financial world is seemingly under attack by sinister, dark forces. You have loved ones to protect and watch out for. Defeat is a real possibility; it would leave your world in ruins.
While you would like to believe that others can be Superman and save the world, the reality is that you need to protect yourself.
It doesn’t take super powers to invest like a superhero, just a few key concepts:
1. Learn and understand your enemies
Most people misunderstand risk, and try to avoid it rather than embracing more of it. By leaving the stock market during gnarly times, they can avoid market risk — the chance of losing money during a decline — but they get hit with purchasing-power risk, the chance that their nest-egg won’t keep pace with inflation.
If your big scary financial monster right now is Europe, or low Treasury rates, think about how to mitigate the dangers without bouncing completely from one strategy to the next. Too many investors fight whatever fight is in the headlines, without ever looking at the bigger picture.
2. Recognize that your strengths don’t guarantee victory
In most superhero flicks, you see the stars try some strategy and find out that it doesn’t work, that their enemy has their number, or at least can counteract. Then they get punched in the face or beaten down and have something to overcome.
If all you do stick with what makes you comfortable, the market is going to punch you in the head, or worse.
You are not Thor, the man with a hammer, because to a man with a hammer every problem looks like a nail. As an investor, even if your core strategy is working, think about how to supplement and add to those basic tactics so that you have more weapons in times of danger and opportunity.
3. Know your weaknesses, but don’t fear them
Ultimately, superheroes succeed in the movies because they confront their weakness and find a way to turn it into a strength, or at least overcome it sufficiently that they can use their real powers to win.
Most investors simply ignore what they don’t know or aren’t comfortable with. It’s why their portfolio has holes in it, or why their asset allocation is only in categories they are comfortable with. They invest in a way that says “If I don’t know the name of something, it can’t possibly be right for me.”
Whether an investor needs to buy mutual funds or hire a financial adviser or simply do an evaluation that shows where their strategy has holes in it that need to be patched, it is important to find out where you are vulnerable before the market finds your weaknesses and turns them into personal traumas.
4. Remember, when fighting the current battle, that there could be more dangers ahead
Expect the unexpected. For a lot of investors now, the market has been so scary that they have gravitated to Treasury bonds even as the 10-year note reached record lows; that may solve fears about stock-market risk, but it backs the investor into a corner and there may be a three-headed monster ahead in the form of rising interest rates, rising inflation and rising taxes.
A superhero tries never to back into that kind of corner, because they know there can be unforeseen dangers ahead. An investor who builds an emergency plan — including savings to help tide over the rough patches — is anticipating both the dangers and the market cycles that lie ahead.