We’re in the middle of flu season and the stories continue unabated of grievous illness and death.
The warnings are clear: wash your hands, stay away from those who are sick, and exercise due care and caution.
The last two words, ‘care and caution’ are of particular importance because they apply to your financial life as well.
Where coughing and sneezing are carriers of ill health, so are the news and media stories speculating outcomes and promoting products that might carry highly destructive risk.
As much as you want to avoid shaking hands with someone who just caught their sneeze in their palm, you need to avoid the talking heads, newsletter writers, and professional pundits who claim authority on what is best for your financial life.
The facts are clear: the stock market was pretty darn good in 2017 and everyone loves an optimistic market; it feels great! However, what happened last year, last week, or yesterday has no bearing on where the markets are going tomorrow.
It feels good to watch your performance take your investments higher, but the impact of consistent growth is the creation of new bars set.
This promotes the idea of creating daily benchmarks of success, instead of more appropriately ignoring short term performance.
You will typically find yourself in a pattern of unrealistically high expectations only to be disappointed when they’re not met – leading to a potentially damaging decision made based on emotions rather than facts.
Instead of focusing on the daily, weekly, or monthly growth of your portfolios, tie your goals to your portfolios based on time and ability to withstand market volatility.
If you are retiring in 20 years, create a portfolio that will withstand multiple business/market cycles and the variety of returns appropriate. The longer time you have, the more risk you may take.
If one of your goals is to buy a new car or save for a down payment, and your time frame is in the next three to five years, you likely cannot afford to take the ups and downs (especially the downs) that come with a short time horizon.
Each segment of your wealth should be germ-proofed by putting them in the appropriate slots.
Avoid infecting your well-conceived plan with speculation and temptation that comes with listening to stock tips, market forecasters, and the pundits who write newsletters for a living.
Their advice is generic and sensational, with a goal of garnering page views and instilling fear rather than taking your personal best interest to heart.
In order to be sure you are moving in the right direct, have your plan updated when something changes, or at least every several years. I recommend annually.
The annual check-up is aimed at maintaining optimal financial health and accounting for changes in circumstances, goals, or life occurrences, such as unanticipated transitions at work or changes with your family.
Consider how often you would check a compass or a map if you were hiking on a new trail. You might not wait hours and hours only to find yourself lost.
If you become tempted to follow the crush of news and contract a case of unrelenting optimism that your financial decision can only bring your success, you are now subject to the false belief that the market will move in alignment with your wishes.
There is a cure for this impractical and potentially devastating mindset, but hopefully, it can be administered before too much damage is done.
If you make a mistake or an emotional decision that “felt right”, call your financial planner and test your theory.
Discuss the real risk associated with your decision.
Hopefully, your planner will help you better understand the ramification of your decision and offer information helpful in supporting your overall objectives.
Work on building and strengthening your immune system by keeping your focus where it should be: on the people you love, your passions in life, and the health and happiness of those around you.
It’s much more satisfying to keep your efforts there than on the daily stock market.
And for goodness sake, wash your hands!