7 Rules For Living…And Investing Well

I recently came across this poster, “7 Rules of Life,” while browsing online. It struck a chord with me so I posted it on Twitter, noting that this is how I try to live my life. Later, it occurred to me that these same themes also have broad application when it comes to wealth planning—especially now, as we all seek ways to cope with an unprecedented event impacting on our lives, communities, businesses, personal finances and the economy.

1. Let it go. When it comes to investing, it’s all too easy to become fixated on past wins or losses, or decisions that may have led to less than optimal outcomes. One reason, according to multiple studies in behavioral science, is that losses weigh more heavily on us than wins. This can be particularly true in an environment where your investment portfolio loses significant value in a very short period of time due to a risk that was unforeseeable and uncontrollable. We saw that in March of this year, when the S&P 500 fell 34% off of its highs for the year in March in response to the coronavirus outbreak. In these situations, it can be easy to surrender to panic and fear. However, if you fled to the perceived safety of cash, and decided to sit things out for a while, not only would you have cemented those losses, but you would not have benefitted when the index rebounded off its lows a few weeks later.
2. Ignore them. That’s why, in many cases, tuning out the noise may be a more appropriate strategy. Market movements are notoriously difficult to predict. Attempting to time the markets in response to confusing and conflicting media reports, or short-term market gyrations, more often than not, can be detrimental to accomplishing your goals. Remember, the markets will change from one day to the next, but your goals remain the same. Investing with purpose requires a plan that is tailored to your specific needs, goals, and time frame.
3. Give it time. Historically, the markets recover over time. That’s why time in the markets, not timing the markets, is so important. Market timing is when you move your money in and out of investments to try and capture the performance highs and avoid the lows. Even the most experienced investors get tripped up by market timing. That’s because you have to know exactly when to get out and when to get back in. Both are exceedingly difficult to get right. If, for example, you sell stocks when they’re down, you may lose out on gains if prices go up again. Moving out of the markets to avoid ongoing volatility can also result in missing the best days of the market. In fact, missing even a few days of strong returns in the stock market can substantially erode long-term performance, costing investors tens of thousands over the life of their investments. Remember, the stock market has generally recovered from slumps over the long term, although past performance is no guarantee of future results.
4. Don’t compare. Where you get your advice matters. That’s why listening to friends, coworkers, and even well-meaning relatives can be a bad idea when it comes to your investment decisions. What may be a good decision for someone else, may not be a smart decision for you. There are many variables that must be considered when structuring your plan and portfolio. Your goals are one. Timing is another. How soon will you need the money you’ve invested for different goals? What is your risk tolerance? How comfortable are you with a 10% drop in market value versus a 20% drop? When do you plan to retire? What tradeoffs are you comfortable with if the markets experience a longer-term dip? These are all important factors that go into tailoring a strategy that reflects your needs and goals and adjusting your plan over time to accommodate changes in the markets and in your personal situation.
5. Stay calm. According to a recent survey, one in four Americans say they have engaged a financial advisor for the first time as a result of the coronavirus pandemic. Among them, 85% of investors agreed that “even if they do all the right things to manage their finances and investments, they can still be blindsided by outside events.” One reason for this is that many people riding high on the 10-year bull market suddenly found out that investing in an S&P 500 index fund is not a plan. And if they weren’t taking gains and reinvesting them along the way, they felt the full brunt of the drop. For many, the recent volatility in the markets has shed new light on the need to have a comprehensive plan in place that takes unanticipated events, like those we are experiencing today, into consideration when formulating an investment strategy. That can go a long way toward inspiring the confidence that you’re prepared for whatever lies ahead.
6. It’s on you. But you don’t have to go it alone. Even experienced and highly confident investors can benefit from professional advice from an unbiased third-party. That’s because no matter how competent you are at managing your own finances, it’s nearly impossible to do so in a highly objective manner, devoid of emotion. Emotion is the arch enemy of sound financial decision-making. It can cause you to second-guess your strategy; fall prey to a herd mentality (buying and selling investments at the absolute wrong times); and many other behaviors that create, rather than eliminate, financial stress. Eliminating financial stress is only one of the many benefits of obtaining professional advice and guidance. The right financial advisor will have access to a full team of resources required to help solve even your most complex needs. But who you work with matters. Make sure the financial advisor you choose places your best interests at the forefront of the relationship, working for you in a fiduciary capacity. A fiduciary advisor is required by law to place your best interests first, serving as your advocate in developing a comprehensive strategy based on your personal needs and goals.
7. Smile. If you’re working with a professional wealth advisor, and you’re following a disciplined and repeatable process that you know is aligned with your goals—it becomes much easier to remove fear and emotion from the investing equation. That enables you to focus on the things you can do now to continue moving forward toward your goals, whether that’s rebalancing your existing asset allocation, plugging any gaps or holes in your planning, or simply staying the course to pursuing your long-term goals.

Knowing you have a comprehensive plan in place that truly reflects your personal goals, and a competent advisor to lead your forward—one who places your needs first—can go a long way toward helping you weather any market climate with confidence. And that should put a smile on your face.

This article was written by Ron Carson from Forbes and was legally licensed by AdvisorStream .