This Week’s Blogger: Scott D. Heins, CFP®, IAG Chief Investment Officer
Within the next few days you will face a critical decision.
Your June investment statements will arrive via e-mail or in the mail. There are three potential approaches you could take because you honestly already know what your statements will tell you.
Option 1: You know the markets have been trending downward and your investments are very likely to have followed that trend. Based on your financial plan, you are confident you are still on track for the long-term despite the temporary ebbs and flows that come with investing. Your monthly cash flow is unchanged.
You decide that you already know all of this, so you set aside your statement and plan to open it later once today’s market volatility can be correctly viewed in the context of the coming years.
Option 2: You love reliving all of the negative headlines you have seen over the last three months, so you open your statement at your first opportunity. You discover the recent past has, indeed, been unkind to your investment values and you feel an emotionally urgent need to take immediate short-term action based on the recent past.
You believe something must be done because the near-term future will be (undoubtedly, in your mind) identical to the painful past.
While it may feel good to take some action and to feel in control, this knee-jerk approach is quite harmful to your long-term financial well-being. Trying to time the markets by selling investments when they are low(er) to buy something safe(r) permanently minimizes your future long-term return potential. This could endanger your long-term financial plan.
Option 3: You get excited about the future, so you open your statement at your first opportunity. Yes, you see your investment values have declined, but you also get excited about the opportunities that only present themselves when the financial markets send you a statement like this. Given the proper time horizon, you recognize that you could potentially profit in the long-term from traders’ short-term pessimism.
Your long-term perspective fills your heart with thankfulness that traders would allow you to purchase long-term assets at such reduced prices.
Which option you choose is completely up to you, but one of these is the wrong choice. Choose wisely!
Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.
Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.
Quote of the week:
Larry Swedroe: “The way I see it, bear markets are like taxes. They’re painful and inevitable, but ultimately they are a necessary evil. . . . Just as taxes redistribute money from the wealthy to those in need, the market has knack for transferring wealth from those without disciplined investing plans to those with them.”
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