Is Your Financial Life Stuck in the Quagmire of Current Events?
Your personal financial plan and investment policy should be enduring. There will likely be times when you make some tweaks to reflect changes in priorities, but you generally should avoid making wholesale changes to your plan based on current events.
If your overall long-term goals change, then you can revise your financial plan, but reacting because of current events can slow your progress.
Why It’s Best to Stay the Course
Famed investor Charlie Munger once said, “The first rule of compounding is to never interrupt it unnecessarily.” Your angst about the current state of politics or policies doesn’t obviate Munger’s admonition.
Financial markets and the broad economy historically go through cycles. However, unlike the different seasons of the year, these cycles aren’t precise or predictable.
An important lesson of history is that while economic and market cycles are inevitable, eventually they end. Trying to outguess the short-term economy or financial markets is often ineffective and risky.
Only you control what you think about and how this influences your decisions. The ancient Stoic Marcus Aurelius wrote, “You have power over your mind, not outside events. Realize this and you will find your strength.”
How to Remain Focused
Investor psychology tends to pull you toward the recent, but your financial success largely depends upon staying focused on your long-term aspirations.
Current events sometimes manifest themselves in a short-term crisis in the financial markets. Even a quick glance back at market history reveals that there’s no reliable way to determine exactly when a particular crisis will end. Because of how rapidly markets can move, if you are truly focused on where you want to go long-term, staying in your seat makes sense.
To avoid being surprised, your financial plan should assume regular and sometimes significant declines in financial market values. Simply put, that’s baked into the cake. The interplay between all of the broad economic inputs and the financial markets day-to-day is nearly impossible to accurately project.
A colleague likes to say, “You have to be in to be in.” In other words, if you want the returns from the stock market, ultimately, you have to be invested in the market.
The Benefits of Financial Planning
In many ways, the personal financial planning process is an antidote for becoming overly focused on short-run noise. Properly conceived and executed, your financial plan helps you internalize the understanding that financial planning can work in all types of market conditions.
Financial planning helps you avoid anxiety about the apocalypse du jour and remain invested even in the face of strong headwinds. The activity of worry can immobilize you and may stall progress toward your long-term planning goals.
In a world overrun with social media, it’s crucial to understand the difference between personal opinions and time-tested wisdom. The ongoing financial planning process, complete with the goals that matter most to you, remains the central theme. Start there. Ready for a real conversation?
Disclosure
Apollon Wealth Management, LLC dba J.E. Wilson (Apollon) is an investment advisor registered with the SEC. This document is intended for the exclusive use of clients or prospective clients of Apollon. Any dissemination or distribution is strictly prohibited. Information provided in this document is for informational and/or educational purposes only and is not, in any way, to be considered investment advice nor a recommendation of any investment product or service. Investing involves risk, and while remaining invested can support long-term goals, it does not guarantee a profit or protect against losses. Advice may only be provided after entering into an engagement agreement and providing Apollon with all requested background and account information. Please visit our website https://apollonwealthmanagement.com for other important disclosures.