Looking Back, Looking Ahead
The start of each new year provides a good opportunity to re-examine your financial life.
One way to start this process is by looking back at what happened during the past year so that you can gain some perspective on how to look at the year ahead.
Why is it Important to Re-examine Your Finances Each Year?
It Teaches You to Accept Uncertainty
Unless you go through the exercise of looking back at your actual financial outcomes, it’s easy to develop historical amnesia. Even after a mostly positive year in the financial markets, there are still plenty of things you can worry about.
The exact way the future will unfold is always uncertain. Learning to accept and live with uncertainty as part of the investing landscape can be a valuable outcome from your regular review exercise. While you might wish the world was easily predictable, randomness and uncertainty are the reality.
By going through an examination of what actually happened last year in relation to your goals, you will begin to develop muscle memory. After a while you will have memories from both good and bad years.
It Prepares You For Future Surprises
This review process should allow you to emotionally prepare for surprises along the way. If you examine how you felt after market declines in the past, you might recall an uptick in your anxiety levels. Of course, that’s just a normal human response. The key is how you reacted after a decline. Emotions are part of the package, but reacting based on your emotions can move you off the path toward your goals.
When you find yourself in a high emotional state about your investments, it’s a good idea to pause, reflect, and remember. This should help you add an element of context to your decisions.
It Provides You the Chance to Reset Your Goals
Another positive aspect of re-examining your finances each year is that it provides space for you to reaffirm or adjust your most important goals. These long-term aspirations should serve as the baseline for your money decisions during the year.
Once you’ve gone through the re-examination process a few times, you might find that you pay less attention to the daily financial news in favor of focusing on what’s really important for keeping you on track.
It Reminds You Not to Try to Predict
An ancillary benefit of an early year financial review is it brings you face to face with the “prediction addiction.” An avalanche of market and economic forecasts appear at the start of each year. While there are predictions to suit nearly every taste, you don’t actually need to predict the future to have a good investing experience.
The field of neuroeconomics teaches us how the brain evaluates various financial choices. In general, your brain looks at financial options in relative , not absolute terms. How various alternatives are framed can sway you one way or the other. The whole process is contextual.
Your context for making good financial decisions is formed from your real life experiences. Your personal contest is a key driver for how you update beliefs and consider opportunities. 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.