It’s Not All About the Numbers
Financial metrics and numbers can be helpful in your financial planning efforts, but they don’t provide enough information for making good decisions. Your specific goals, constraints, risk factors, and investing time horizon are all more important.
1. Investing is About Your Goals
One of our constant themes over the years has been to impart to clients that life is “more than numbers.” Indeed, the story of your financial life can’t be properly framed just by a string of numbers.
It bears repeating, lest you place undue emphasis on any particular metric, that the primary reason for investing is something you want in the future. The current economic conditions, stock market valuations, and the political environment, don’t matter much. Your sole focus should be aimed at a decade or more in the future.
Of course, the instant circumstances may induce some nervousness. In reality, there are always reasons for anxiety when making financial decisions. Tomorrow, next month, or next year will bring a fresh new set of things to worry about.
The more that you keep your long-term goals in the forefront, the less any particular financial metric from today will matter.
2. The Context of the Numbers Matter
Some numbers or metrics are easy to determine, but have different meanings depending on your perspective. For instance, you can easily calculate how much debt you have today, but it’s hard to determine the precise impact this debt will have on your future. Debt impacts your nimbleness or financial flexibility, but just how much is impossible to determine in advance.
Numbers are discrete, but the context for numbers matters. Think about the range of numbers on your lab report when you go to the doctor. Knowing the reference range for the various panels is important. Otherwise, it’s just meaningless digits.
Sometimes a particular number, like investment returns or stock market percentages, can become a hindrance to critical thinking. Your cognitive decision making process can be easily blurred by unimportant numbers.
We sometimes see clients who are fixated on particular numbers like the “4% retirement withdrawal rate.” It’s important to remember that rules of thumb by definition are broad and inexact. These numbers may not be useful in your specific situation.
3. Don’t Overreact to Financial Investing Numbers
Numbers can also form the basis for overreaction. Many investors find themselves in an emotional firestorm when markets are volatile and numbers flash warning signs. It’s usually a good idea in times of turmoil to step back and look at longer swaths of market history to calm your nerves. As a colleague says, “It’s okay to feel uneasy and fearful; it’s not okay to act on those fears.”
My working hypothesis is that it’s easier for investors to focus on random numbers than actually create meaningful goals. Thinking about and prioritizing your life goals is hard work. What your aspirations are and what really matters in your life outweighs numbers any day!
In many ways, you have to rewire your thought process in order to pay more attention to your personal metrics instead of generalized numbers. Learn what matters most to you, unlearn what isn’t relevant, and re-learn how to make good financial decisions. Start there. Ready for a real conversation?
4. 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. 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.