Current events are often the explanation in one form or another for not doing so, such as political or economic concerns. The problem is that there always has been and always will be uncertainty…in fact, we should embrace it! If there were not uncertainty, what economic rationale would we have to expect higher returns from equities relative to cash and bonds?
For this reason, I’ll refer readers back to the title of the article. For a long-term planning and goals focused investor, buying opportunities occur when we have the money. Contrast this with what the media, in a never ending attempt to get readers and viewers, tries to distract us with: buying or selling “opportunities” relative to headlines and current events. If you want your financial life to be one of constant stress, conflict, and confusion, just become a regular consumer of financial media.
Consistently acting upon a goals based financial plan is what I’ve seen throughout my career as the best predictor of a successful investment experience, while attention towards current events and short term performance is what best predicts failure.
Start with a goal…then make a plan to achieve your goal…and finally an appropriate portfolio can be created that reflects your plan. An example of a typical financial goalis a date specific (“I want to be able to retire by 62”), dollar specific (“I want an inflation adjusted income of $100,000 per year”), retirement goal. From here, a plan can be created based on how many years you have left to achieve your goal, how much you have already accumulated towards your goal, and how much per month from now until then you can save towards your goal. A good financial advisor can help you walk through this process, and even “Do It Yourself” investors could benefit from a second opinion to make sure your goals and plan are realistic as well as your resulting portfolio.
Then to the maximum extent possible, automate your progress towards your goal(s). For example, your 401(k) contributions occurring automatically from your paychecks and your IRA and/or HSA contributions occurring automatically from your bank account. Assign a purpose to every dollar in your possession. Volatility should be expected, and a good financial plan includes cash-flow planningthat accounts for market risk…if you’resaving for a short to intermediate term goal to where you’ll need to fully liquidatecapital within 5 years, don’t put much, if any, of that capital in the market. Instead, match short term liabilities with short term assets such as savings accounts, CD’s, and bond funds. For long-term goals, such as a retirement that might not begin for decades and might also last for decades, automate your retirement account contributions (buying as soon as you have the money) into diversified equity funds and embrace volatility as this can lead to higher returns through dollar cost averaging. Anything else (piling up cash, waiting for “opportunities”) is playing the loser’s game of market timing.
One of the greatest gifts we’ve all been given is the power to choose. It makes sense to choose to become an expert on the things we can control, such as setting clear and realistic goals and making a plan to achieve them. An appropriate portfolio is a reflection of such a plan, and includes the basic fundamentals of portfolio balance, broad diversification, low expenses, tax efficiency, and disciplined rebalancing. Goal focused investors know that efficient markets already reflect all known information and are therefore unpredictable, so he or she wastes no energy attempting to time them. Risk is accounted for and thereby managed within a financial plan, not in real time based on a forecast or gut instinct. Other factors that are out of our control, like political and economic current events, have no influence whatsoever on our decisions because publically available information has no predictive value.
Successful investors: Focused on goals and their financial plan
Failed investors: Focused on current events and short-term performance
If you can’t clearly articulate your goals and plan on how you’re working towards achieving them, make it your top priority after reading this post to finally take action and get it done.
Jesse Blom is a licensed investment advisor and Vice President of Lorintine Capital, LP. He provides investment advice to clients all over the United States and around the world. Jesse has been in financial services since 2008 and is a CERTIFIED FINANCIAL PLANNER™ professional. Working with a CFP® professional represents the highest standard of financial planning advice. Jesse has a Bachelor of Science in Finance from Oral Roberts University. Jesse manages the Steady Momentum service, and regularly incorporates options into client portfolios.