3 Simple Rules for Investing in Tomorrow

Kyle Thompson, CFP®, CPA

Investing in your future should be pretty simple, right? You identify your goals, create a portfolio designed to help you meet those goals, and follow your path. Aside for making a few tweaks now and then to accommodate changes in your own life, that plan shouldn’t deviate very much. If your long-term goals remain consistent, so should your plan. But as living, breathing, emotional human beings, we have a tendency to complicate that process. The result can be confusion, upset, and even panic about how and where to invest your hard-earned assets. Here are three simple rules to help you cut through the noise and keep your finances on track—and your mind at ease—today, tomorrow, and far into the future:

Ignore the headlines. Money is important, and it’s always wise to stay informed about what’s happening in the market. But keeping informed and reacting to media sensationalism are two entirely different things. You may remember a headline that was quite the news back in January 2016. Andrew Roberts, the chief for European economics and rates for the Royal Bank of Scotland, posted a reckless prediction for the coming year. “Sell everything!” he said. He went on to advise RBS clients to brace for a “cataclysmic year” that would see a global deflationary crisis, a 20% drop in the stock market, and oil prices plummeting to $16 a barrel. When The Wall Street Journal ran the story, it threw more than a few US investors into a tailspin wondering what to do. Of course, in hindsight it’s easy to see that not only was Roberts’s prediction utterly wrong, but anyone who had heeded his guidance would have missed out on the impressive market growth we’ve seen over the past five quarters. In mid-January 2016, the Dow Jones Index had dropped to just under 16,000. On March 31, 2017, the Dow Jones Index closed at 20,663. What a difference. And while that may be one of the most notorious examples, there are always headlines that can threaten to steer even the most steadfast investor off course. When the headlines are screaming the latest warning, trust your long-term plan. When in doubt, ask for guidance from a knowledgeable and trusted advisor.

Keep your focus on the end game. The post-election market surge has been a thrilling ride for investors. The Dow Jones Index and the S&P 500 Index have both been breaking records for months. During winning streaks like this, it seems you can’t get a cup of coffee without hearing another short-term investor bragging about their spectacular gains. That can be tough to stomach when your own diversified portfolio may actually be slightly underperforming compared to the major indices. Here’s the thing to remember: the biggest indicator of long-term success is consistency. A consistent, diversified portfolio that is balanced to address your personal goals protects you against market downturns while also positioning you for gains when the market climbs. That means you’re in for a smoother, safer ride, no matter which way the market fluctuates. When the market cycle changes (and it will, in time), you can bet your latte-sipping friends won’t be making much noise about their substantial losses. After all, success stories make for much more impressive tales! So relax, enjoy your coffee, and know that you’re preparing for retirement—not trying to time the market for flash-in-the-pan successes.

Maintain a balanced portfolio at all times. As tempting as it may be to try to chase returns—especially during a bull market—the test of time has shown that a balanced portfolio is the key to long-term gains. The common adage is to “buy low and sell high,” but achieving that timing is a function of luck—not skill. Over time, what has been shown to deliver optimal results is not market timing, but a disciplined investment approach. A portfolio that includes a balanced concentration in short-duration fixed income and cash equivalents can help protect your assets during a downturn. How? Having cash reserves allows you to address your drawdown needs without having to sell when the market is at a low point. As a result, you’re more able to sail through that cycle without fear. When it comes to investing, there will always be winners and losers at any given time. But realize that being “right” is easy when the market is up, and there will be times when your balanced portfolio may underperform on a single stock or during an ultra bull market. Make it your goal, always, to be “right” for the lifetime of your portfolio. A portfolio with a fundamentally sound investment base doesn’t seek homeruns. Instead of trying for homeruns, focus on years of consistent singles and doubles, and some memorable triples. If you stumble upon a homerun along the way, consider it icing on the cake. That’s the way to win the game. Always.

Of course, the benefits of this type of grounded, steady approach to investing go far beyond the potential for a superior financial outcome. Perhaps the best perk of all is that you’ll no longer feel that pang of panic when the headlines shout to “Sell everything!” or “Buy gold!” And the next time your friend is celebrating an exaggerated profit on her latest stock pick, you can smile on the inside knowing that you’re on a smooth and steady path toward a comfortable retirement—no matter how the unpredictable market behaves in the interim. I can’t think of a better reason to raise your glass!   

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Kyle Thompson, CFP®, CPA
Partner | Senior Financial Planner | Chief Investment Officer


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