We are now subject to volatility, which can be scary to even the seasoned investor, but it speaks of opportunity. If the watershed conditions of 2008 and the subsequent recovery have taught us anything, it is to take the emotions out of investing and don’t just buy/hold and forget.
This year is a great time to apply active management.
There are a myriad of ways to put a plan in motion, but the market is fluid, so you must be willing to be proactive.
Active investing basically means to have more “hands-on” participation. It doesn’t necessarily mean to do it yourself but to choose portfolio managers who aren’t afraid to take advantage of market swings and movements.
Have a discipline for the pitfalls and unknowns along the way, so you stay in control of your emotions. Life happens, and it’s easy for all of us to lose sight of our goals.
It is even easier to make detrimental decisions that are consequences of acting on panic.
I encourage investors to use the marathon analogy to the investment process.
Running 26.2 miles in one shot tests not only a runner’s endurance but also their ability to pace themselves with a long-term goal in mind.
Like investing, the journey can sometimes prove both painful and frustrating yet still be rewarding.
An athlete, like an investor, must train themselves instead of just reacting to obstacles.
I advise new and experienced investors to instill three important practices to help them take control of their finances:
Be Patient
Set periodic goals and have a tangible way to measure success. It’s important to set these goals to a level that can realistically be achieved, so you aren’t tempted to make abrupt changes and take on risk that doesn’t match your tolerance.
Have a long-term mindset, especially with portfolios with stock exposure.
Be very wary of any short-term recommendations that seem too good to be true.
Be cautious not to fall into the trap of comparing performance to benchmarks that don’t appropriately reflect your holdings.
For example, a portfolio that has 20% short-term fixed income exposure should not be compared to popular benchmarks like the S&P 500 or the NASDAQ composite.
Have Financial Checkups
Conduct reviews and don’t shy away from conversations with your investment advisor, CPA, and insurance and estate professionals to help you make informed decisions.
Remember, you’re the captain of your financial ship.
Ask yourself, “What do you want out of a relationship with a financial firm?”
Educate yourself enough to explain what you’re invested in and why it’s suitable for you.
The more wisdom you attain, the more confidence you can have in the process.
It’s very important to understand what constitutes a risky investment.
There are many ways to measure risk. Have your financial professional walk through a statement or suggest reading material that can keep you current on new legislation that may impact your investment portfolios.
Ask seemingly basic, yet important questions:
- “Are we on track?”
- “How am I diversified?”
- “What’s the impact of fees/costs associated with my investments?”
There are no investment-based questions you should be intimidated to ask.
Communicate life changes that may affect your financial picture as imperative as well: starting a new job or business, divorce, inheritance, selling a home, marriage, new children, or grandchildren — let your advisor know.
Stay Focused
Find strategies that meet your objectives but be content when those goals are met.
I see investors get uneasy and make mistakes when they let fear and the disappointment that comes when that “hindsight is 20/20” way of thinking creep in.
Edit the opinions of people who are not privy to your financial picture.
The crowd can be deafening and could cause you to deviate from your plan. Your plan should be unique to you because your life and family’s needs are constantly evolving in both anticipated and unforeseen directions.
Shut out the noise — don’t let a pundit on the news convince you to buy an investment with significant downside potential if you can’t stomach the loss.
I often shake my head when I hear some of the panic-inducing commentaries on television. It’s good to be prepared for any possible downside risk, but allow history to be your guide; maintaining a level head during poor market conditions is important.
Know that opportunities are always created, regardless of the market’s volatility.
Unlike a marathon, investing is not a competition.
Slow and steady wins the race.
Address concerns along the way, but stay on course and be proactive rather than reactive.
