On episode 30 of Minds Over Money I discussed the power of being an owner of companies as a time-tested, long-term strategy to build wealth and maintain income in excess of inflation. Here are a few suggestions to maintain your focus in the face of short-term market volatility.
First, stocks don’t make people wealthy, people make themselves wealthy. The most important variable in your investment plan is also the only variable you can control, your own behavior.
Make sure you have written goals detailing how much money you will need and exactly when you will need it. Then, have a written plan for accumulating and distributing the money you need, using a realistic assumption of return.
Invest the same dollar amount in the same investments each month. That way, even when some of your investments seem to be down – and especially when the whole market craters – the miracle of dollar-cost-averaging is buying you bushels of low-priced shares.
Dollar-cost-averaging empowers you to view down markets as an opportunist rather than a victim.
A four percent systematic withdrawal from a nine percent asset class (equities) has historically been a formula for an income you don’t outlive and a growing gift for your children and grandchildren.
But when you have the money and sell when you need the money. Everything else is market-timing, which is another term for madness.
And wouldn’t it be nice to have someone to talk to when the going gets tough? A professional advisor, not a commissioned salesman, but a true fee-only planner, can be your filter for the financial information overload that you are receiving. Your advisor can calm you when you are too greedy and motivate you when you are too fearful. An unemotional, detached voice of reason can be a stabilizing force in the confusing hail of information coming at you from the talking heads on TV.
Someone you trust, with only your best interests in mind, acting in a fiduciary capacity, can be the best investment decision you make. When the average mutual fund returns several percentage points more than the average mutual fund investor receives, the only explanation is bad investor behavior. A trusted advisor can add value by correcting that bad investor behavior and closing the gap on the difference between “investment” returns and “investor” returns and that’s probably many multiples of their fee.If you and your life savings are being ignored or feeling taken advantage of, come join our family. We are a family-owned financial planning and investment advisory firm who promise to treat you like family. No products. No hard sell. No gimmicks. Just honest advice based on four decades of experience.