Is Your Investment Plan Working?

I’m learning of my kids’ preferences for roller coasters. Henry, our youngest, just says, “Nah, I don’t want to go on.” Gianna, the middle-child, is all in and the more speed the better! Jake, our oldest, gets excited, then proceeds to nervously talk himself into it while in line but ultimately enjoys himself. The stock market is starting to feel like a roller coaster again. You may be noticing this on your statements. If you haven’t, that may not be a bad thing, and I’ll explain why later.

Unlike a roller coaster, the pattern is not defined in financial markets so understanding the normalcy of cycles can allow for better decisions. In recent years, financial markets have been relatively calm, but even that can mean different things to different people. Markets always move up and down but historically they increase over time for those who can stomach the short-term movements. The primary problem is inexperienced investors don’t equate the present time with the “short-term.” So while “the head” understands that investing requires a long-term mindset, “the heart” does not always follow suit.

People often ask, “Why can’t I have growth without risk?” Think of it this way: Steve Jobs and Steve Wozniak co-founded Apple in 1976 (along with short-term co-founder Ron Wayne). As the owners (stockholders) of the Company, they took the risk and earned the reward. Those who loaned them money along the way did benefit from their success by earning interest (but nowhere near the return of owning the company). When you own a stock, you are a company owner (no matter how small), hence you take on higher risk and potentially higher reward. The same concept applies to owners of real estate property as they too would be an equity owner. Risk can create the potential for greater return over time. This is the same reason cash savings at the bank pays next to nothing. The bank takes on most of the risk. As the saver, you generally earn less in exchange for the element of stability.

It would not be unusual for the roller coaster to continue. And that’s not a bad thing as it can allow long-term investors to accumulate more shares at lower prices, think, buying on sale! Here are a few tips to keep in mind when markets are rocky:

“Don’t put all your eggs in one basket” as the saying goes. Some investors are seduced away from this principle when they see one class of investments doing better than another, but investment classes often adjust not giving clear indication when an increase or decrease is coming. While diversification does not guarantee a profit or protection from losses in a declining market, it can reduce risk over time.

A good long-term plan does not preclude you from challenging or negative circumstances. Judge your plan based on the soundness of its foundational principles rather than short-term outcomes.

Outline your objectives and their respective timeframes. If retirement is thirty years away, the short-term fluctuations mean little as the priority is to build more savings for the long-term to eventually turn into income. A shorter timeframe would likely call for a more conservative and less volatile investment plan as stability would be a priority.

Words like “correction” or “bear market” are just terms. No one knows for sure what will happen tomorrow. News is information, not advice!

Proverbs 12:15 says, “The way of a fool is right in his own eyes, but a wise man is he who listens to counsel.” Many of us get “tunnel vision” when it comes to our personal finances. Emotion can cloud our judgment. Don’t confuse telling your story to someone who will simply support what you want to do with seeking the advice of someone capable and truthful. In my experience, objective wisdom is important.

Psalm 24:1 states, “The earth is the Lord’s, and all it contains, the world, and those who dwell in it.” You’ll never be the perfect steward and you’re not expected to be. Jesus shares a pertinent story, referred to as The Parable of Talents (Matthew 25:14–30). Two men are praised for their efforts in managing the assets of their master. Surely, they experienced challenges and imperfections, but they kept pressing forward. The third is rebuked not for his mistakes but because he was described as “afraid,” “wicked” and “lazy.” God’s word has a lot to say about managing money successfully and the bottom line is that He is entrusting you with what you have been given.

At this point, maybe you identify with Henry (stay away!), Gianna (c’mon growth!) or Jake (proceed with cautious optimism!). Whatever your approach…

Your investments may go up and down but follow a plan built on sound principles….

Talk with us about your portfolio or financial plan here: Talk with an advisor

More Reading: Practically Speaking — Changes to Social Security

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