It’s easy to think that your portfolio is a plan. It isn’t. Successful investing starts with a purpose and is driven by the planning framework supporting that purpose.
Without the purpose, you end up reacting to short-term events in the markets. That’s like trying to think clearly in a cloud of clutter.
Your investing purpose should reflect your goals and what matters most in your life. Famed TV producer David Goetsch says, “I take comfort in being a long-term investor focused on controlling what I can control while accepting that uncertainty is inevitable.”
The daily noise and clutter are focused on things happening differently than expected...uncertainty. As Goetsch says, “uncertainty is inevitable.” You can’t wish it away. It’s meaningless in the long term and distracting in the short term. Your long-term money isn’t concerned about today’s news.
How Restlessness and Uncertainty Are Related
Why We Are Restless, a beautifully written new book by two Furman University professors describes the problem this way. “Our love of the screen, with its diversions and distractions; in our fascination with crises in almost every area of human life.”
To clear a path through the clutter, you need to understand that most of the media noise about investments is purely entertainment. It helps to remember that despite all the clamor, there’s no compelling evidence that shows market timing or investment selection can beat the broad markets.
A few years ago my wife and I attended the Hootie and the Blowfish concert here in town. Barenaked Ladies, a Canadian rock band, opened the show. Their first song, “Bringing it Home'' contained these lyrics,” It’s not an overnight success. Where everyone expects unlikely outcomes and I’m just somewhere in the mess.”
Many investors expect unlikely outcomes and then end up somewhere in the mess.
Dimensional Founder David Booth says “Too many people keep falling into the same traps.” There’s no such thing as short-term investing. That’s speculating, not investing.
Why Financial Planning Holds the Key
I’ve lost count of the number of times a prospective client says that they don’t need financial planning. These folks are entirely centered on investing and want us to be the guarantor of good returns.
Financial planning provides the foundation to support your long-term goals. Without this framework, you are just bouncing around, always reacting and responding to news, noise, and clutter.
Ultimately, we are a guide, not a guarantor. When you hire a river guide for a trip, the guide doesn’t know precisely what the conditions will be along the ride. The guide is charged with helping you down the river safely toward your destination. That’s precisely what we do.
Related: Markets: Up and Down, Not Up and Up