Earnings season is among us. If you’re not familiar, it’s a time when publicly traded companies release their quarterly earnings reports. It’s usually the busiest time of the year for those who work in and watch the markets. Many analysts set their expectations for specific quarters, so the results reported by the companies during earnings season often play a significant role in the performance of the stock. Considering most of the country is on lockdown, and unemployment claims are at their highest in history, you can expect things to get a little rocky for Q1 2020 earnings report. Word of advice: only the disciplined will survive.
Beyond performance, successful investing requires understanding what matters and, at the same time, recognizing what you can control.
Financial planning is a process, not an endpoint.
Financial planning isn’t a destination; it’s a process. Similar to iterating and agile development — it involves agile planning, evolutionary development, continual improvement, and encourages rapid and flexible responses to changes in life. Inherent in its nature, real financial planning will focus on being smart with your money, and it will equip you with the solace needed in moments of uncertainty.
Concentrate on long-term goals and objectives.
Buying an investment and holding it for the long haul can help keep you focused on your goals and reduce the anxiety that is often experienced with short-term volatility. While short-term profits can often entice investing neophytes, long-term investing is essential to greater success. Not to mention, long-term planning allows you to abandon a hand-to-mouth approach and set a priority list for the things in life you genuinely value. All in all, you should invest for your goals, not just for the sake of investing. Your financial success depends less on what markets do — and more on figuring out who you are and what you want out of life.
Focus on reaching goals, not beating benchmarks.
Investing, now more than ever, is about controlling the controllable. You can’t control the markets. But you can control how you react to the markets. Be that as it may, I’m an advocate of goals-based investing or setting a personal benchmark. After all, would you be upset if you achieved all that you wanted in life, but didn’t beat the S&P 500 consistently? Probably not. From my experience, no one has ever mentioned benchmarks when we talk about their life goals and values. Why? Because it’s not the benchmark that’s truly important to you.
Maintain a disciplined approach in good and bad markets.
Only the disciplined will survive. That reigns true in both good and bad markets. Disciplined investors understand that the market is cyclical, and there will be periods of growth and decline. Sure, discipline sounds nice in theory, but it’s certainly challenging to execute in the real world where market conditions change, incomes fluctuate, and personal needs and desires evolve.
Because of this, it’s easy to get caught up in the whirlwind of emotions and make costly mistakes. If you genuinely want to be a disciplined investor, you must create and stick to a game plan that allows you to be both flexible and steadfast for decades to come. Put your finances on autopilot. Have automated processes in place that forces you to make systematic moves not based on how you’re feeling at any particular moment or based on the movements of the markets. Remember, only the discipline will survive.
Invest broadly and globally; asset allocation is key.
Although you have no control over your investment returns, asset allocation is still one of the most important investment decisions you can make. Besides your risk tolerance and time horizon, it also tells the unique story of who you are as an investor.
If it helps, try to decide on an investment philosophy that aligns with your goals and objectives. For example, my philosophy is to continuously invest in globally diversified passive vehicles while paying a low fee. It’s nothing fancy, but it’s a prudent way of getting the job done.
Reduce investment and tax costs when possible.
Limiting your investment-related fees and expenses is a critical aspect of investing. Think about it in this fashion — every dollar saved is a dollar that remains in your portfolio working for you. It’s fair to wonder if lower-cost investment vehicles will yield lower returns. However, time and time again, we’ve learned that low-cost index funds outperform the vast majority of their actively-managed peers in the long run. Go figure. As for tax costs, that’s simply a matter of displaying patience and holding on to your picks for the long-term.
Rebalance as necessary.
Investing isn’t a one and done activity. In fact, it’s quite the contrary. Selecting the right allocation of stocks, bonds, and funds is a delicate balancing act that should be revisited periodically. It may not seem obvious, but investments can, and do, change in value. Markets and economies change, and individual businesses change. Similarly, holdings may increase or decrease in market value or have changes to the dividend. Because of this constant change, it’s wise to rebalance your portfolio to the target allocation regularly.