Stay Focused on the Destination
With Brexit now and reality and not something that is just making the occasional news cycle, what does it mean for you? In the short term, it probably will mean some stock market volatility, non-stop media coverage, and a lot of misinformation going around! The long-term effects of Brexit are still to be determined, but things are sure to work themselves out, like they have in the past. Major market events come and go, but for some reason they always take us by surprise when they do.
This brings me to the real focus of this blog. As I read social media post, articles, and listen to the pundits on TV, it reinforces the need for a solid financial plan that is "goals" based and not solely focused on the stock market returns or certain investment products. You set yourself up with false expectations, fear, and uncertainty with this approach. Further, if you are working with a financial advisor that has a focus on exaggerated promises of returns or specific products, there might be too much emphasis on "selling" and not enough on advising toward your personal goals.
Where are You Going, and How Much Fuel Do You Need?
Let's make an real life comparison to goals based financial planning. You get in the car with your best friend, and are about to take the road trip of a lifetime! The weeks, months, and maybe years spent planning, packing, and saving for this trip are now coming to fruition. The excitement is overwhelming. You both have your sunglasses on and the music up. As you drive, you take many turns, different highways, and several exits to get to your ultimate destination. You are halfway there and making great time, when suddenly traffic comes to a halt. There has been an accident along the way that will slow down your progress. For most of us, our first instincts would be to see how much fuel we have, look at the time, and maybe check our smartphone for an alternate route to our destination.
Do you see where I am going with this? This is goal based financial planning in the simplest form. I don't know anyone in the same situation that would jerk the wheel, change lanes, and rush off the next exit in a panic saying, " What are we going to do? Our progress is slowed down. We might as well sit here until we figure out what is going on." Of course not. However, this is what most people's initial reaction to anything that happens with the stock market or their finances. This is because a clear destination hasn't been set, a reasonable time to get there, the amount of fuel it will take, and a few alternate routes along the way haven't' been set. You don't worry about those things along the way because you are focused on getting to the end destination. (Mine would be the beach) This is also because we make our road trip plans on a logical basis but for some reason make our financial ones on an emotional basis. There has been a lot of research into behavior finance that I will be writing more about in the future.
I hope this has put some perspective into how you look at your financial plans and where you should really keep your focus. Concentrate on the destination and what you have to do to get there. The detours and bumps in the road will work themselves out as you get there.
Have a great day!
972 Commercial Drive, Richmond, KY 40475