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Confused about the Direction to Take with Your Investments? You are NOT alone!

  |   Financial Planning, Investment Planning

This Way That Way

“I’m very nervous about investing in US stocks.  How much higher can they go?  As soon as I invest, the market correction will finally happen.”

“Why would I invest in international and emerging market stocks?  Europe is growing more slowly than the US; we still don’t how Brexit will turn out; and look at how those investments have performed so far this year.”

“As for bonds…why bother?  Interest rates are still relatively low, and the bonds I just bought will lose value as the rates increase.

“At least if I put $1 in the bank, I will be able to get back my $1. I won’t lose money.”

If any of the above sound like conversations you have had with me, your other advisors, friends, and/or family members, take a minute to consider the following:

#1 There is not a single right way to invest

Everyone has their opinions about how to invest, and they don’t seem shy about sharing why they are right and you are wrong.   Given that figuring out and sticking with your own strategy is hard even in good times, and downright uncomfortable and difficult in bad times (think 2008!), don’t let others be the judge of what is the right way for you to invest.  Sure, you need to be educated and at least consider other points of view.  But at the end of the day, if you have taken the time to develop a strategy that is based on your goals, balances the risk and reward, and which you truly understand, you are likely on the right path.

#2 Don’t let buyer’s remorse take over

We’ve all been there.  You finally make a decision to buy a new car or adopt the cute puppy only to feel doubt about the cost and/or the commitment.  Similarly, with investing, you may finally decide it is time to move from cash to a diversified portfolio only to lose 20% of your initial investment in a matter of days.  You gut reaction may to sell you whatever you bought and go back to cash.  If your decision to invest was made based on your situation at the time, your understanding of the risks, and your comfort level, the short-term noise should not overcome your longer-term goal.  Embrace the buyer’s remorse for what it is and move on.

#3 Small steps are better than no steps

If you have been waiting for something (anything) to happen to give you the sign that it is time to start investing (commonly referred to as trying to time the market), understand that even if there is such a thing, you will most definitely miss it or be too scared to take action.  Many people say they are waiting to make a big investment until the next market correction.  In reality, when that correction happens, most people will not take any action.  The constant reporting of how many points the S&P 500 has lost this day, this week, this quarter, will quickly make you feel like hiding under a blanket with a stack of dollar bills.

Instead, consider slowly investing a small amount of money, maybe 3 – 5% of the total you have available to invest (remember, this is money you don’t plan to spend for 10+ years).  For example, if you have $20,000 available, commit to investing $200 on the 1st day of the next 5 months.  Don’t worry too much about what the pundits are saying or whether the stock market is up or down.  Just stick with your plan.  At the end of the 5 months, re-evaluate.  Were you able to sleep at night? Were you able to withstand the ups and downs of your account value?  If you answer yes to both, you might be ready to increase the monthly amount for your next round of investing.

#4 Timing the market is difficult, if not impossible

For “proof” that waiting for the perfect time to invest is not a great strategy, see the graph below courtesy of J.P. Morgan Asset Management.

AUTHOR - Tammy Wener

As co-founder of RW Financial Planning, Tammy oversees the financial planning process for all clients and manages the day-to-day operations of the firm. She truly enjoys getting to know her clients and is not shy about asking questions. Tammy has 15+ years of experience in the financial planning and estate planning fields and has worked with a broad range of clients including: couples simultaneously planning for financial independence, caring for their parents, and saving for college; newly widowed and divorced women looking to become more financially literate; young couples just starting out; families juggling the demands of a child with special needs; and financially independent individuals and couples exploring “what comes next.”