Freaking Out Because the Dow is Down? These People Aren’t.
Our financial planning clients get it. Sometimes the stock market gets ugly and accounts drop in value. You expect some panicked clients to call with orders to sell out of their investment portfolios. In fact, receiving a phone call or email from a flustered client wanting to hit the panic button is unusual for us at CameronDowning. Why?
Would you keep driving down the same road if you don’t know where it ends? Of course not. You name your destination first and then map out the route. When you establish a personal financial plan you’ve marked your route on the map, and focus on the destination. What happens to the left and to the right of you becomes not so important because you know where you’re heading.
A lot of people freak out in markets like this, and they pay for it dearly by being reactive instead of proactive in their financial decision-making. They end up looking to the left and looking to the right and then selling low and buying high. They are missing one of the most important inputs to financial decision-making: self-knowledge. Knowing how much you have to invest and for how long is on the quantitative side of financial planning. You really need to begin with the qualitative side. When you know yourself, you can clearly articulate your goals and needs according to priority for you and your family. This is often closely linked to your personal risk tolerance — your ability to stomach market volatility. This is a critical element when making investment decisions in your portfolio. When you know your personal investment risk tolerance, and invest accordingly, you are much better prepared to weather the inevitable storms that come with market investments. After all, market volatility is nothing more than assets being re-priced on a daily basis according to how much investors are willing to pay for them. Much like airline tickets.
My challenge to you is to take the time to know yourself and, more specifically, know your investment risk tolerance. This is so important that we offer a free risk tolerance analysis to anyone who wants to find out. Go here: Riskalyze. Take a few minutes and see your own score. You’ll enjoy it.
Accept that your account won’t always go up in a straight line and markets will do what they do and reprice themselves daily. Historically the trend is upward, but who knows what will happen tomorrow? If you can’t stand any risk, then don’t put your money in the stock market. If you have a long time horizon, follow some good advice: make sure you have a well-diversified account, rebalance periodically, and, most importantly, find out and invest according to your personal risk tolerance. You owe that to yourself to make you a better investor.
Jonathan is an FIU alumnus and Co-Founder and CERTIFIED FINANCIAL PLANNER™ at CameronDowning, LLC. He provides targeted financial advice to young professionals on building personal wealth, student loans, employer benefits/401ks, planning for a first home purchase, estate planning, and basic insurances. He lives and works in Coral Gables, FL and is married to his beautiful wife, Lauren. For more on Jonathan, visit www.cameron-downing.com.