One of the realities of investing that we know all too well is that markets and the value of our investment portfolios never stay the same. Seems pretty obvious to many, but somehow no matter how much or little experience we have as investors there is still an element of surprise when we check our portfolios after hearing a news headline telling us that the markets are down, and sometimes down by a lot .
Yet the very nature of that uncertainty means that no one, not the Wall Street experts, not the pundits on TV news, nor the people in your Twitter feed, know what will happen next.
As an investment manager and financial planner, this surprise can sometimes happen on my side of the desk, too. I spend hours in front of monitors with headlines flashing, prognosticators prognosticating, and attending video calls with fund managers and research analysts to stay on top of current events that may impact my clients’ portfolios. I have been investing money for clients for over 25 years, and yet, checking in on my own portfolio can still come as a bit of surprise when I see the impact the negative news is having in real dollars and cents. Up close and personal, I understand how uncertain times can affect investor emotional well-being.
I am fortunate to have spent years in the throes of market uncertainty and am conditioned to remember that down markets do not last forever. My investment experience definitely helps to blunt the impact of the emotional roller coasters inherent in long term investing. But investing know-how is not the only thing that helps us ride out the volatility of our investment portfolios. Having a well-diversified investment portfolio (don’t put all your eggs in one basket) and avoiding emotional money mistakes (have a trusted financial adviser) are especially important during times of economic uncertainty.
What Investors Really Need to Stay on Track
What else do you need to weather the emotional tides of investing? You need a plan. Not only a well-diversified investment plan, but a comprehensive financial plan that periodically stress tests, evaluates and projects your financial safety under a broad combination of current and possible market scenarios. You need to know that if your fears come true and the markets stay down for a while, will you be OK? Will you be able to maintain a lifestyle similar to the one you have been living before the markets started falling or fall even further? Or, to take this to the extreme, will you have any money left when the market dust settles? This last question really tests the strength of our perceived financial security.
So how does having a financial plan answer these hard questions? The financial planning process forces you to examine what you spend now, what you want to spend later and how long the money you have saved will last under various market conditions. The planning process also asks you to set spending priorities based on how you think you will want or need to spend your money in the foreseeable future. Once your “have-to-haves” versus the “want-to-haves” become clear, you will find it much easier to trim your spending when the time comes. You are, in effect, testing the strength of your emotional and financial well-being before the market downturn occurs, giving yourself the time to make thoughtful adjustments in your short- and longer-term spending goals and saving habits. This, in turn, will foster a greater sense of control when up against the many external factors that truly are outside of your control.
What Are You Waiting For?
Now what if you do not have a financial plan and you are worried about your long-term financial security? What if you have always believed you have plenty of money to live out your days and suddenly you are worried that you might not? Is it too late? Do not! However, the sooner you begin the financial planning process the quicker you will gain control over your finances and your emotional discomfort. And even if the planning test results confirm you have reason to worry, take comfort in the fact that you now have the information needed to make thoughtful changes to both your spending and saving and to shore up your resources for the long term. You can expect to have some short-term financial pain as you temporarily tighten up your spending habits, but over time you will see what a difference even small changes can make to both your emotional and financial well-being in the months and years ahead. So be brave and do this financial planning work as soon as possible!
Financial markets will always be in motion and how you react to them will need to be kept in check. If you believe that investing in these markets will allow you to grow your nest egg, then you will have to accept this. And you will find accepting this is much easier if you have taken the time to do what you can to control what you can: spending AND saving.
When you have faced your fears and have come to understand the realities of your financial circumstances, you can remind yourself that you will, in fact, be OK for the long term. Seek out a financial adviser you can trust who will take the time necessary to know you and understand your concerns. Make sure you have a well-diversified portfolio to help you ride out the ups and downs of volatile financial markets. And absolutely have a thoughtful financial plan to lean on throughout your investment journey that will support your emotional well-being.
Hightower Advisors, LLC is and SEC registered investment adviser. Securities are offered through Hightower Securities, LLC, Member FINA/SIPC.
Wealth Adviser, TC Wealth Partners
Nancy Bell is a Certified Financial Planner™, Certified Divorce Financial Analyst®, Chartered SRI Counselor™ with 25+ years of experience in personal comprehensive financial and wealth planning. She is a wealth adviser and voting member of the investment committee at TC Wealth Partners, located in Downers Grove, Ill.