Don Steinmann's Investment Tip of the Week

Don Steinmann's
Investment Tip of the Week

Getting the Toe Clips Right

Getting the Toe Clips Right
My friend Russ is an avid bicyclist who builds his own bikes. One day he asked me “If you’re building a touring bike, what’s the first thing you have to get right to make sure the bike fits you properly?”. I guessed the seat or the handlebars and he said no “First you have to get the toe clips right”. He said it took him awhile to figure it out, but the toe clips don’t depend on anything else, but everything else depends on the position of your feet. As crazy as it sounds, when building a $2,000 touring bicycling (road bikes don’t use clips) a $10 set of toe clips determines the setup for everything else.

There is a real lesson for investing in that. When you’re looking at an individual investment, there are many factors you must consider. But there will usually be a key factor that’s a show stopper. Example: When I’m looking at a stock, they have to be profitable. They can have all the future potential growth, great management, etc., etc., but if they aren’t (or haven’t recently been) been profitable, out it goes.

The same applies when creating a personal portfolio. You’re creating an investment portfolio. But you know you’re going to need to withdraw most of the funds in two years to purchase a house. In that case, the only portfolio that fits is putting the money in a savings account. Two years is too short a period for long term investments like stocks and bonds. Your ‘toe clips’ in this case is the limited time frame.

Whether it’s a bicycle or an investment, you must first get those toe clips right, or nothing else will fit.

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