Your portfolio may be designed to give you the best chance of achieving your financial goals but...
Unfortunately, the market doesn’t care about your goals and your risk tolerance.
Because the Market Has a Mind of Its Own
And a lot of the time, it can feel like the market is out to get you personally. Of course it's not, but it sure can feel that way. A key characteristic of a well-designed financial plan is the consideration of market volatility— and for good reason. It can shake even the most unflappable people. Building wealth over time may seem like a futile effort, but a well-designed financial plan can help you brave the ever-changing ebbs and flows of the markets.
A Living, Breathing Plan
A financial plan can give you a better idea of how to meet your goals. Any good financial plan is dynamic. People often see their financial plans as fixed in stone. You don’t want to wander too far away from your goals—but goals change. As your goals evolve, your plan must change too. Life changes can affect your financial goals as much as market changes. You may get a new job, enter a new tax bracket, buy a home, inherent money, need to care for an aging family member, have a baby or get a divorce, among the countless other life changes. What you can do is build a plan that accounts for the different scenarios that life could throw at you.
What Should You Do?
Your best first defense is to be aware of current trends by using the resources you have around you. With a prudent financial plan and the right supporting resources, you decrease the risk of being blindsided by unexpected factors that could negatively impact your financial situation. Focus on what you want to do with your money—not the trends and noise that could pull you off track. Having a clear vision of how you intend to invest and why. This is essential for making decisions that serve your larger financial goals. Knowing your investment philosophy will keep your eye on the big picture instead of market highs and lows.
Another thing that can derail your best-laid plans:
Y O U R E M O T I O N S
Emotions can distract from goals by driving you to deviate from your plan. Instead of letting market gyrations dictate your actions, always look to your plan for guidance. A good plan that’s carefully laid out in partnership with a good financial professional should walk you through various simulations, so you make rational decisions well before emergencies arise.
Sleep Better by Having a Financial Plan
There’s no way to see into the future, but there’s one thing you can predict: Markets will always be unpredictable.
It’s a financial advisor's job to collaborate with you on a thoughtfully designed plan that accounts for any issues that could derail your plan. This allows you to endure the inevitable bad times with confidence. So, if you have a plan, stick with it, and make sure it’s updated as your goals shift. If you don’t have a plan yet and are just focusing on investing advice, you’re missing out on the sense of security that a quality financial plan can provide.
The best way to predict the future, is to prepare for it.
-Paul R. Rossi
Paul R. Rossi, CFA