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Buy When You Have the Money, Sell When You Need the Money


Money can be quite an emotional topic for many of us. Emotions can enhance our experiences and relationships in many ways, but they can act as mental roadblocks especially when trying to make wise financial decisions. One of the most common emotional roadblocks I come across when working with individuals is an unwillingness to invest idle cash to meet long-term goals.

It takes courage and perspective to be willing to overcome the emotional fear of tying up one’s cash.
 

Current events, political or economic,are often the explanation in one form or another for clients’ unwillingness to invest. The problem with that reasoning is that there always has been and always will be uncertainty…In fact, we should embrace it! If there were not uncertainty, what economic rationale would we have to expect higher returns from equities relative to cash and bonds?
 

For this reason, I’ll refer readers back to the title of the article. For long-term planning and goal focused investors, buying opportunities occur when they have the money. Contrast this with what the media presents in a never-ending attempt to increase readership and viewership as it tries to distract us with buying and selling “opportunities” relative to headlines and current events. If you want your financial life to be one of constant stress, conflict and confusion, just become a regular consumer of financial media.


Consistently acting upon goal-based financial plans is what I’ve seen throughout my career as the best predictors of successful investment experiences, while attention towards current events and short-term performance is what best predicts failure.

Start with a goal…then make a plan to achieve your goal…and finally establish an appropriate portfolio to reflect your plan and goals. An example of a typical financial goal is a date specific (“I want to be able to retire by 62”), dollar specific (“I want an inflation adjusted income of $100,000 per year”), retirement goal. From here, a plan can be created based on how many years you have left to achieve your goal, how much you have already accumulated towards your goal, and how much per month from now until then you can save towards your goal. A good financial advisor can help you walk through this process, and even “Do It Yourself” investors could benefit from a second opinion to make sure their goals and plans are realistic as well as their resulting portfolios.  
 

Then to the maximum extent possible, automate your progress towards your goal(s). For example, make 401(k) contributions occur automatically from paychecks and IRA and/or HSA contributions occurring automatically from bank accounts. Investors should assign a purpose to every dollar in their possession. Volatility should be expected, and a good financial plan includes cash-flow planning that accounts for market risk. If saving for short to intermediate term goals that could require fully liquidated capital within 5 years, investors should not put much, if any, of that capital in the market. Instead, they should match short-term liabilities with short-term assets such as savings accounts, CD’s and bond funds.

For long-term goals, such as a retirement that might not begin for decades and might also last for decades, investors should automate their retirement account contributions (buying as soon as  money is available) into diversified equity funds and embrace volatility as this can lead to higher returns through dollar cost averaging. Anything else (piling up cash, waiting for “opportunities”) is playing the loser’s game of market timing.

One of the greatest gifts we’ve all been given is the power to choose. It makes sense to choose to become an expert on the things we can control, such as setting clear and realistic goals and making plans to achieve them. An appropriate portfolio is the reflection of such a plan and includes the basic fundamentals of portfolio balancing, broad diversification, low expenses, tax efficiency and disciplined rebalancing.

Goal focused investors know that efficient markets already reflect all known information and are therefore unpredictable, so he or she wastes no energy attempting to time them.  Risk is accounted for and thereby managed within a financial plan, not in real-time based on a forecast or gut feeling. Other factors that are out of our control, like political and economic current events, have no influence whatsoever on our decisions because publically available information has no predictive value.
 

Conclusion
 

Successful investors: Focused on goals and their financial plans


Failed investors: Focused on current events and short-term performance


If you can’t clearly articulate your goals and plansand how you’re working to achieve them, make it your top priority after reading this post to finally take action and get it done.


Jesse Blom is a licensed investment advisor and Vice President of Lorintine Capital, LP. He provides investment advice to clients all over the United States and around the world. Jesse has been in financial services since 2008 and is a CERTIFIED FINANCIAL PLANNER™ professional. Working with a CFP® professional represents the highest standard of financial planning advice. Jesse has a Bachelor of Science in Finance from Oral Roberts University. Jesse manages the Steady Momentum service, and regularly incorporates options into client portfolios.

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