It is an investment fact that we know very well that the markets and the value of our investment portfolios never stay the same. It seems pretty obvious to many, but somehow no matter how much experience we have as investors or our lack of experience, there is still an element of surprise when we check our portfolios after hearing a news headline telling us that the markets are pulling back, and sometimes a lot.
However, the nature of this uncertainty means that no one, not the experts on Wall Street, not the experts in TV news, nor the people on your Twitter account, knows what will happen next.
As an investment manager and financial planner, this surprise can sometimes happen on my side of the desk as well. I spend hours in front of screens as headlines flash, forecasters warn, and I attend video calls with fund managers and research analysts to stay on top of current events that may affect my clients’ portfolios. I have been investing money for clients for over 25 years, however, checking my own portfolio still comes as a bit surprising when I see the impact of negative news in real dollars and cents. Up close and personal, I understand how unstable times can affect an investor’s emotional well-being.
I am fortunate to have spent years in the midst of market uncertainty and am equipped to remember that bear markets do not last forever. My investing experience certainly helps mitigate the emotional safeguards inherent in long-term investing. But investing experience is not the only thing that helps us weather the volatility of our investment portfolios. Have a well diversified investment portfolioDon’t put all your eggs in one basket) and avoid emotional financial mistakes )You have a trusted financial advisor) is particularly important in times of economic uncertainty.
What investors really need to stay on track
What else do you need to beat the emotional tide of investing? You need a plan. Not just a well-diversified investment plan, but a comprehensive financial plan that periodically tests, evaluates and plans your financial soundness under a wide range of current and potential market scenarios. You need to know that if your fears come true and the markets stay low for a while, will you be okay? Will you be able to maintain a lifestyle similar to the one you were living before the markets started to fall or crash further? Or, to take this to an extreme, will you have any money left when the market dust settles? This last question really tests the fortitude of our perceived financial security.
So how does having a financial plan answer these tough questions? The financial planning process forces you to examine what you are spending now, what you want to spend later and how long the money you saved will last under different market conditions. The planning process also asks you to prioritize spending based on how you think you want or need to spend your money for the foreseeable future. Once “haves” versus “haves” becomes clear, you’ll find it much easier to cut back on your spending when the time comes. You are, in fact, testing the strength of your emotional and financial well-being before A downturn occurs in the market, giving yourself time to make thoughtful adjustments in your short and long-term spending goals and saving habits. This, in turn, will promote a greater sense of control when faced with many external factors that are already out of your control.
what are you waiting for?
Now what if you don’t have a financial plan and you’re worried about your long-term financial security? What if you always thought you had a lot of money to live out your days and suddenly worry that you might not? Too late? no! However, the earlier you start in the financial planning process, the faster you will be able to take control of your finances and your emotional turmoil. And even if the results of the planning test confirm that you have reason to worry, feel free to the fact that you now have the information needed to make thoughtful changes to both spending and savings and to support your long-term resources. You can expect to experience some short-term financial pain while you temporarily tighten your spending habits, but over time you’ll see the difference even small changes can make to your emotional and financial well-being in the months and years ahead. So be brave and do this financial planning job ASAP!
The financial markets will always be in motion, and you will have to control how you react to them. If you believe that investing in these markets will allow you to grow your nest, you will have to accept that. And you’ll find this a lot easier to accept if you take the time to do what you can to control what you can: spending and saving.
When you face your fears and come to understand the reality of your financial circumstances, you can remind yourself that in reality you will be fine in the long run. Find a financial advisor you can trust and will take the time to get to know you and understand your concerns. Make sure you have a well-diversified portfolio to help you weather the ups and downs of volatile financial markets. And you definitely have a well thought out financial plan that you can rely on throughout your investment journey that will support your emotional well-being.
Hightower Advisors, LLC is a registered investment advisor with the SEC. The securities are offered by Hightower Securities, LLC, a FINA/SIPC member.
Wealth Advisor, TC Wealth Partners
Nancy Bell is a Certified Financial Planner™, Certified Financial Analyst with Divorce Financial Analyst®, and Chartered SRI Counsellor™ with over 25 years’ experience in comprehensive financial and wealth planning. She is a wealth advisor and voting member of the investment committee at TC Wealth Partners, located in Downers Grove, Illinois.