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The noisiness of everyday life can easily draw you into worrisome current events. Mostly, these recent happenings aren’t material to your current financial life and rarely are relevant to your long-term aspirations.
Investment Diversification Is the Remedy to Your Stress
We often talk with clients who ask how a specific investment might perform in the short-term if one of the disquieting recent events comes to fruition. In reality, a well diversified global portfolio will usually have some segments performing better or worse than others. This may have nothing to do with recent events. Rather, it’s why you have diversification in the first place. Short-term underperformance or over-performance is generally not important and is just market noise.
Trying to be ‘over precise’ with your portfolio can disrupt your progress toward financial goals. Financial markets are impossible to predict in the short-term and don’t always behave exactly as you might expect.
Don’t Let Your Politics Influence Your Decisions
Making investment portfolio decisions based primarily on current events is the “third rail of investing” to use the term from author Nick Murray. To the extent that you change your long-term financial plan because of some current event, you’ve fallen into the trap.
How you react to recent events is directly linked to your beliefs. Professor Daniel Kahenman, who recently passed away wrote, “Beliefs are hypotheses to be tested, not treasures to be protected.” Sometimes your beliefs are simply wrong.
It’s important to recognize that just as personal beliefs influence your decisions, so do the beliefs of others around you. The opinions of family and friends can sometimes unintentionally distract you from focusing on your most important goals. These distractions are potentially harmful to your finances if you react emotionally.
Helping you tune out the noise is one of the major benefits of working with a financial planner. It’s difficult to muster the patience and temperament needed for successful investing totally on your own.
Do Not Fear
Fear is the most prevalent emotion generated by many current events. Of course, fear is a very basic and powerful human emotion. There’s a ‘push and pull’ nature to fear. This tension can help you avoid harm at times, but it can also keep you from achieving important goals.
Fear is fueled by uncertainty and nothing you do can totally eliminate uncertainty from the investing realm. Almost every headline that you see in the media each day is written to maximize fear. A helpful technique when reading the headlines is to ask yourself, ‘what does this have to do with me?’
The antidote to fear is maintaining a steady focus on your long-term goals. The more that you keep your aspirations in the foreground, the further fear moves into the background.
Markets rise and fall, sometimes for a reason and sometimes for no reason at all. Focusing on these daily market swings can be detrimental to your long-term plans.
Try to look beyond the current events and keep your most important goals clearly in focus. Start there. Ready for a real conversation?
Related: The Importance of Building a Flexible Financial Life