This article is part of the series

Options Trading

When is It Okay to Buy a Boat?

Options TradingTradeKing

Did you folks catch this recent Washington Post article by Barry Ritholtz, ‘Never buy a boat’ and other rashfinancial advice?Like so much of Ritholtz’s writing, I found myself cheering at the finish andall throughout. He starts by observing a certain paradox of his two jobs as anasset manager and a writer about investing. For the former job, he’s dispensingfinancial advice that’s hopefully sound – read, boring. But the latter jobdemands that he write interesting, punchy stories that capture a lot ofeyeballs and make the clicking finger itch.

“Neverbuy a boat” is one of those truisms of financial advice that Ritholtz argues isflashy and obvious: it purports to be universally true, smart advice. It pointsout supposed stupidities that others engage in (and you’ll, naturally, try toavoid). But in its overly simplified flashiness, it misses a crucial largerpoint: not all financial advice is that simple. “Merelysaying “no” is not financial advice; it is a form of blind risk avoidance,”writes Ritholtz. “The problem with such advice is twofold. First, itmisunderstands the purpose of money. Second, it fundamentally misses out on thebest way to make intelligent financial decisions.”

Continue Reading Below

I won’t spoil yourread of this excellent article in its entirety. But its larger point hit homefor me: in personal finance, in trading and investing, and in life, sometimeswe prize the advice that’s pithy and super-simple-sounding. But in reality, allof our decisions are enmeshed in a broader network of interrelated factors.Buying a single stock sounds easy, clear-cut. But that stock position thenbecomes part of your larger, hopefully diversified portfolio; it might be justone position in a trading-specific account, which is itself one of severalaccounts, each devoted to their own purpose and long-term financial goal. Inbuying a boat or a stock, you should always understand the broader context:what are the full costs associated with buying a boat, and can you afford thosebalanced against all your other expenses? Or, in the stock’s case, do youunderstand the position you’re holding, its potential risks and rewards, andhave a clear-cut plan to exit the position under well-defined circumstances?Ritholtz draws these comparisons better than I could at the close of hisarticle.

In a larger sense,though, I think it’s important to regard money as a tool. Once you’ve beendisciplined in enacting your financial plan, you should be allowed to burn some“mad money” on hobbies that you thoroughly enjoy. I’m a case-in-point: oursouth Florida house has a pool, which many regard as a money-pit. True, poolsaren’t the most surefire investment to build your house’s long-term equity value.But you know what? We calculated exactly how much that pool would cost tomaintain, and how much we planned on using it. And we hit the pool nearly everysingle day. Judged by those standards, that “money pit” is actually among thecheapest daily pleasures in our lives – a bargain, in fact!

What bit of simplisticfinancial advice have you ducked successfully? What’s your boat or swimmingpool equivalent?

Be Good,

Don Montanaro

CEO, TradeKing Group

www.tradeking.com

Follow Don on Twitter and hone your skills at TradeKing All-Stars. You can also followTradeKing on Twitter, Facebook, Google+ or YouTube.

[image: Blue Fishing Boat by Pedro RibeiroSimões on Flickr]

Trading has inherent risk due to systemresponse and access times that may vary due to market conditions, systemperformance, and other factors. An investor should understand these andadditional risks before trading.

Investments involve risk, losses may exceedthe principal invested, and the past performance of a security, industry,sector, market, or financial product does not guarantee future results orreturns. TradeKing provides self-directed investors with discount brokerageservices, and does not make recommendations or offer investment, financial,legal or tax advice. You alone are responsible for evaluating the merits andrisks associated with the use of TradeKing's systems, services or products. Ifyou have additional questions regarding your taxes, please visit IRS.gov or consult a tax professional. TradeKing is unable to provideany tax advice.

TradeKing is not affiliated with, does notsponsor, is not sponsored by, does not endorse, and is not endorsed by thecompanies mentioned above or any of their affiliated companies.

At the time of publication and in thepreceding month, TradeKing and/or Donato Montanaro did not have ownershipgreater than 1% in any stocks mentioned; did not have any other actual,material conflict of interest known at the time of publication; have not receivedcompensation from a public offering nor from investment banking servicesrelated to any companies mentioned within the past 12 months, nor expect toreceive any in the next 3 months; nor engaged in market making in thesecurities mentioned.

? 2015 TradeKing Group, Inc. All rightsreserved. Securities offered through TradeKing Securities, LLC, member FINRA and SIPC. TradeKing Group,Inc. is not a broker-dealer.