I have $20,000 available from a life insurance payout from my Dad. My wife and I don’t need the money (as long as I’m not fired). We are risk averse even though we are in our 30s. What would you do with it?
There is no more important investment principle than risk management. You place trades with the highest probability of success, but if the market goes against you by more than what is reasonable to lose, you exit the position.
You have to have rigid rules regarding how much you’re willing to lose on a trade. That’s the only way to take the emotion out of it, and to prevent yourself from rationalizing ever and ever greater loss. It’s the only way to be a successful investor.
Having said that, I currently recommend some combination of gold and US Treasuries. Stocks may be a good investment sometime in the first half of 2009.