Short-Term Returns vs. Long-Term Financial Planning
Short-term thinking almost always leads to poor investment decisions. Too often, investors get out of the market during difficult times, only to get back in after the market has rebounded. This tendency to essentially buy high and sell low usually results in a significant gap between investment returns and investor returns.
Investors who like to do their own investment planning think they are controlling the cost of their investments when essentially, they are paying “risk premiums” because they are putting their money at risk. Like a gambler seeking a big win at a Vegas casino, these investors think that a ‘win’ during a bull market is an indication of their own good judgment.
“Do-it-yourself” investors often make investment choices that are not well integrated with their financial goals. Selecting an investment vehicle requires much more than a simple understanding about how the selected investment vehicle is performing in the market. It’s about understanding how this particular investment will AFFECT your unique financial needs and your future.
Will this money be available to you when you need it?
Do you know how to protect your retirement lifestyle by protecting how much you will need in retirement?
What will happen to your tax projections?
How do you want your children or grandchildren to benefit from your decisions?
What if something happens to you before your investment dreams come true?
What kind of the Living Trust is best for you?
Do you own a business?
Do you know what you want that business to do for you in retirement, for your family?
Focusing solely on short-term returns can hurt your overall long-term objectives. Each financial objective has a different time frame and, therefore, risk level. These goals might include having enough resources to cover emergency expenses, put a child through college, buying a home or having a steady stream of income during your retirement years.
For most long-term investors, achieving their financial goals starts with developing a financial plan with the help of their adviser. Advisors help their clients align their investments with clients’ unique financial goals. An objective based framework that divides client assets along broad based objectives-such as preservation, balance and appreciation-reflects a well-balanced, diversified portfolio.
As always, please feel free to contact me with any questions.