If you follow the financial news, you may find yourself pulling for certain outcomes—economic growth, a stock market rally or low inflation, for example.
But fretting over the economy or markets is no more effective than
rooting for your favorite sports team in front of your television set. The fact is that, as investors, much is beyond our control: Hoping is pointless, and so is worrying.
The fact is that focusing on the things we can control is the only effective way to reach our goals. Doing so can be more difficult during turbulent markets, but that is exactly when it’s most important. And although it may not always seem so, there is much that we can control.
1. Have a plan. Good financial planning leads to clear investment goals. Having substantive, long-term goals—funding a comfortable retirement, for example, can help you to maintain a long-term focus and avoid being swept up in the day-to-day emotion of the market. Planning also allows us to gain a clear understanding of our risk tolerance.
2. Manage risk. Once we understand how much market risk we need to take to reach specific goals—and how much risk we’re comfortable with—we can create a customized investment portfolio. Portfolio risk is controlled through asset allocation and diversification: By spreading risk across asset classes, we increase our chances of participating in areas of growth and minimizing areas of weakness. The result is a higher probability of success over the long term.
3. Stay disciplined. Once we have a plan and a portfolio that matches it, we can focus on keeping that portfolio is fighting trim. Specifically, we must regularly review our holdings and investment goals. And we must sell or buy asset classes in order to maintain our original allocation.
4. Focus on taxes. A qualified investment advisor can use a number of tools to help mitigate the tax impact on a portfolio: Employing a low-turnover approach, skillfully harvesting losses to neutralize taxable gains, and using asset location strategies to shelter as much wealth as possible. Remember, saving money is as important as earning it.
5. Tune out the noise. We can’t control the markets or the economy, but we can turn off the television. And we can refrain from continually checking on the market or on our day-to-day portfolio balances. Allowing the financial media to get you worked up can only lead to poor, short-term decisions. And remember that the media don’t have a crystal ball. In 1979, Business Week magazine ran a story headlined: “The Death of Equities.” The story appeared at the beginning of one of history’s most spectacular bull markets.
6. Choose a fiduciary advisor. Investors seeking professional guidance should hire a fiduciary to manage their assets. Fiduciary advisors, such as Steel Peak Wealth Management, are legally required to act in your best interests; the brokerage industry is held to a less-stringent standard that can lead to conflicts of interest.
By focusing on what we can control, we enhance our chances of achieving investment success. And by letting go of things we can’t control, we can reap a windfall of time and energy—and perhaps enjoy life a little more.