I have written quite a bit about behavioral issues over the past few months. The reason is simple…how you behave in the face of normal, (or even not so normal), market events likely determines if you have good or bad investing experiences. While all of us are adults, sometimes we don’t act like adults when market performance differs from our expectations.
Almost anything can happen in the short term because new information becomes available and this information is reflected in share prices. The adult long term investor understands this and further appreciates that based on all of the available information, current market prices are appropriate. Tomorrow may bring yet a new set of circumstances and prices will change. It has always been so. The aim is to harvest the long term market returns that allow you to take incremental steps towards your long term objectives.
The primary goal, of course, is to meet your specific goals and the investments should act in concert with these goals. Financial planning forms the bridge between investing and goals. Planning does not make you immune to behaving badly but it does provide a sense of safety around the discipline of the planning process.
The components of the financial planning process, starting with a clear outline of goals followed by creating a path towards those goals are good foundations for staying the course. The investment policy statement along with regular review and modification of the plan/path are critical to good long term investing experiences.
Adult investors understand and expect that there will be times when investing is scary. They further appreciate that reacting to scary temporary market conditions likely moves you off the track towards your goals. That ends up being even scarier in the end. Ready for a real conversation?