Are You Ignoring the 24/7 News Cycle and Focusing on Your Financial Plan?
No one can guarantee when the markets will go up or down. Lots of talking heads and so-called “experts” like to claim they know when factors like news items or current events will impact how the stock market behaves, but it’s all guesswork.
It’s extremely easy to get caught up in a 24/7 news cycle that produces headlines and predictions meant to invoke emotional reactions in viewers. But the key to long-term financial success is tuning out the noise and understanding that ups and downs happen.
We know markets can be volatile. That’s part of the price paid to invest and earn more money than you could almost anywhere else — and it’s also something to account for in a comprehensive financial plan.
The only certain thing is that the market will rise and fall. We don’t know exactly when. All the noise from reporters, TV hosts, or others speculating about what the market will do next because of elections, the Fed, or whatever else they point to as the why behind their guesswork only serves as a negative distraction.
Instead of panicking and reacting based on what you hear on the news or from folks at work, you can create and set a financial plan, tailored specifically to you, based on reasonable, objective decision making (instead of emotional and irrational). A great financial plan accounts for your goals, your risk tolerance, and your concerns — and it means you already know what to do when others threaten that the market may take a turn due to whatever people happen to be worked up over today.
WHAT DOES IT MEAN TO HAVE A COMPREHENSIVE FINANCIAL PLAN?
A comprehensive financial plan is specific to you. It includes factors like:
- Your goals (saving for a house or a child’s college education, retiring early, starting a business, and so on)
- Your income
- Your cash flow
- Your tax situation
- Your target retirement date
- Your future earnings and income
- Your risk tolerance
- Your time horizon
Note that each of these components of a financial plan starts with “your.” That’s because a comprehensive financial plans starts with you — not the news, or the global markets, or future predictions.
And of course, a financial plan can include more than just what’s listed here. Again, the theme is you. What’s important to you? That has to be factored in.
While investing is an important part of achieving your long-term goals, focusing solely on investments alone is similar to running around a hamster wheel. There will be highs and lows, but if you aren’t working toward something, you’re just running in circles.
Investing coupled with a comprehensive plan that looks at the big picture ensures you are investing appropriately for your situation and making progress toward your goals.
DON’T PANIC AND REACT WITH EMOTION
One of the most important benefits to having a financial advisor is that they can serve as a gatekeeper to keep you from reacting emotionally and totally derailing your financial plan. When markets tank (like they did in 2008 and 2009), people start to panic.
As they watch the markets fall, they react emotionally. They can’t stomach losing so much money. They freak out! And then they sell at the absolute worst time: when markets are already down!
Keep in mind that after you sell at the bottom, you won’t know when to buy back in — and that often leaves people buying at the top of the market. Selling low and buying high is the opposite of prudent investment advice. Meet the “behavior gap”.
Think of it this way: you wouldn’t go to a store and specifically not buy something because it was on sale. It’s the same way with stocks. When they’re down, they are “on sale.” This is the rational, objective way to look at the market.
But when it’s your money and your net worth you see taking a hit because the market dropped, it’s extremely difficult to maintain that mindset and act rationally. Again, most people panic and never dream of buying because it really hurts to see those red down arrows next to your investment balances.
An objective third party can help you prevent such a huge mistake. A financial planner willing to act as your fiduciary will remind you of your comprehensive financial plan that was already built assuming there would be market volatility.
In short, that means your planner can give you some of the most valuable advice you can ever receive when everyone else is panicking: don’t deviate from your plan! That may mean staying the course and taking advantage of this latest ‘sale’.
THE RIGHT PLAN WILL HOLD STEADY THROUGH CURRENT EVENTS
Ultimately, a comprehensive plan stands the test of time. Because market fluctuations are expected (remember, it’s the timing that’s unexpected), your plan already accounts for them.
Your financial plan tells you what to do even in turbulent markets or troubled and uncertain times. It’s designed for the long-term. What feels like a big, massive upheaval today will likely be a blip on the radar when you look back in 30 years.
The best way to safeguard against panic and emotional reactions is to have a financial plan — and then stick to it.
Most Read IRIS Articles of the Week (February 20-24)
Here’s a look at the Top 11 Most Viewed Articles of the Week on IRIS.xyz, February 20-24, 2017
Click the headline to read the full article.
Becoming cyborgs is the way to go for financial advisers…blending robotics and humans into one organism. You see, I am convinced that robo-advice models will succeed and prosper. — Tony Vidler
With the global economy warming up, but political uncertainty remaining a constant, it’s more important than ever for investors to position their global portfolios to navigate long-term market volatility. That’s where the power of diversification comes in ... — Yazann Romahi
The financial world is noisy and it’s easy to become distracted from your most important long-term goals. One way to cut through the noise is to focus on just the two factors that ultimately determine your approach to everything else in your financial life; namely, Market Risk and Shortfall Risk. — James E. Wilson
It’s important to admit the truth behind our actions in order to rectify past and future mistakes or regrets. Living in denial only perpetuates making decisions that could potentially lead to financial disaster. — Michael Kay
There's one key approach that makes you invaluable to your clients so they want to stay with you for the long-term. You have to genuinely be interested in people. — Paul Kingsman
When you start dating, you usually start off sharing stories. Tales of your childhood, your previous relationships and your college days. Those stories help explain to your partner who you are and how you act. — Mary Beth Storjohann
It runs counter-intuitive to what we have been led to believe business is all about: make more money and everybody wins, surely? Talk about revenue so that everyone knows what’s important. What’s the problem? — Barry Chandler
In the wake of President Donald Trump’s stunning upset victory, however, muni investors were forced to readjust their expectations of fiscal policy going forward. Because Trump had campaigned on deep cuts to corporate and personal income taxes, equities soared while munis sold off, ending a near-record 54 weeks of net inflows. — Frank Holmes
What does it mean to be a customer-centric company? That seems to be the question of the week. It started off with one of our subscribers emailing in the question, followed by two reporters wanting my take on this now-popular phrase for their interviews. — Paul Laughlin
Everywhere I look I see organizations and people investing heavily in new initiatives, transformation, and change programs. And in almost every case the goals will never be met. One of the most crucial causes of the failure? The right questions were never asked at the outset. — Paul Taylor
Why should we think the head of a private equity company could effectively “fix” US Intelligence? It is not apparent that this individual is even remotely qualified to fix the US intelligence apparatus. — Kathleen McBride
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