Successful investing can be hard. After all, how do you define a successful investment plan? Is it when you have earned 5%, 10%, 25% or 50% in a single year? What about risk? When your investments don’t perform well, how do you know that they are holding up they way they should? And what about your goals? Are your investments matched to the timeframe for each of your goals so that you’ll have the money you need at the right times?
I’ve been in the financial services business since I was a part-time teller at Laconia People’s National Bank in high school. I don’t want to tell you how long ago that was but I do know that I’ve seen and heard a lot of different approaches to successful investing. Some have been highly successful, and others have been frightening failures. But the best wealthy, financially successful people I know are those who took a patient, disciplined and long term approach to managing their finances. You could call it “the boring approach” because it really does not have the excitement of Wall Street or watching the CNBC business channel every day.
Here are my “boring” tips:
Know how your investments are performing
In business school I learned that if you don’t measure it, you’ll have no idea how well you are doing. The same holds true for investing. While most investment companies provide regular statements, brokerage firms tend to leave that off. Plus, if you work with multiple firms, you have to bring all of your statements together to get the whole picture. Fortunately, more and more firms are offering account aggregation services to consolidate investment performance reporting (including Financial Planning Solutions).1 These services track the performance of each account and provide a consolidated returns across all of your accounts. Knowing your performance is the first step to obtaining and maintaining control of your finances.
Consolidate to better track your investments
Have you worked at more than one company or organization? Did you open a brokerage account and then later fund a Roth IRA? If you are like most people, you have many similar accounts a several different financial firms. Sometimes people think this is a form of diversification, but diversification pertains to allocating individual investments not using different financial firms. One of the biggest drawbacks of having multiple financial firms is that it is more difficult to determine if all of your investments are working together with a diversified approach. Time and time again, we see prospective clients investing in the S&P 500 in several different accounts. This does not provide them with the diversification they seek.
Design an investment program that fits your needs
When you think about your investments, are they separated based on the goal for each account? What about risk and return? Are your taxable accounts invested exactly the same way as your retirement accounts? Do you have some short-, intermediate-, and long-term goals? Do you have different investment strategies for each of these timeframes?
When we are building out a financial plan, each plan should have accounts divided into different segments. Sometimes this is called a “bucket” approach with one account providing growth, one income and the last serving as a cash transaction account where bills are paid. There are many ways to set this up. The point is to have a system that fits with your needs, tolerance for risk and return. On the last point, return, we believe you should only take on the amount of risk you need to meet your goals. The reason is, why take on unnecessary risk if you don’t need to?
Buy low, sell high
Sounds simple, right? If we only had that crystal ball to know when the market is peaking or bottoming, making money would be easy. We have found that the trick to this approach is to do something that is pretty hard—buy when people are panicking and sell when you feel like the market is going to keep going up. This contrarian approach to investing can be very hard. Human emotions tend to drive the “gut feel” to get out of the market when things look bad. So, it requires discipline and a good long term perspective to go against the grain and buy more when stocks are falling.
As it is often said, Rome was not built in a day. Many of our most successful clients did not become financially independent in a day either. Whether they earned their wealth from a business or saving and investing, they took a long-term approach. In November of 2021 I received a call from a highly successful professional who wanted to know if we should buy one of the top tech companies and add it to his portfolio. His feeling was that the company had been so successful that it must be headed for even more success. The stock was overvalued and also did not fit his risk profile, e.g., too risky. This is an example of how it is easy to get caught up in the emotional moment of making money instead of investing.
Most of the time it is hard to be a successful investor. In some ways, I liken it to the discipline that is required when one goes on a diet (okay, maybe it doesn’t have to be THAT hard). With a disciplined approach and a long term plan, you can do it.
Do you want to explore our “boring” approach? Give us call. We’re here to help. You can schedule a quick call with me by clicking HERE.
Lyman H. Jackson
Click HERE to receive our award-winning newsletter. We never share your info and you can unsubscribe at any time. Check out more blogs from us at www.PlanWithFPS.com/blog · 6 things you should do to protect your retirement https://planwithfps.com/blog/6-things-you-should-do-to-protect-your-retirement · Why automatic investment plans are awesome https://planwithfps.com/blog/why-automatic-investment-plans-are-awesome · 5 tips for young professionals looking to start investing https://planwithfps.com/blog/5-tips-for-young-professionals-looking-to-start-investing
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.