I know that this may be a controversial topic but I would rather bring truth to my blogs and take heat as opposed to beating around the bush and voicing only what I think our readers want to hear. If I can make a positive lasting impact, I have been successful. My clients at Keen Wealth are typically smart and prudent people who have been very good at what they do in their careers. In particular, the engineering community that we serve, consists of many of these accomplished professionals that have walked through our doors looking to delegate the task of managing their hard-earned money – capital that will hopefully carry them through their retirement. In my experience, the most successful of those folks are the ones that acknowledge that “they know what they don’t know,” and seek help.
But I gotta tell you … Every so often, I’ll sit down with someone who’s so smart, so accomplished, so successful, that it gets in the way of his or her investment potential. I’ve learned that some of the same things that make people successful in business may not translate well into their personal financial planning and investing.
The “engine to your plan” – the equity markets, don’t respond rationally short term.
If you’re a smart, successful business person or professional of any type, then you probably have a list of key performance indicators that you check often to keep tabs on your most important projects. If you are an engineer involved in engineering, procurement and construction management you are most likely monitoring each day of your project with precision. The stakes are too high not to have a constant feedback loop in place. If you are a physician making the daily rounds to check patient vitals you are most likely focused on the hour to hour results your patients are demonstrating and making tactical shifts as needed. Again, the stakes are very high.
So it’s only natural that people try to apply the same smart scrutiny to their investments. This is especially tempting if you’re working with online services or apps that let you check how your investments are doing, moment by moment, even as investors all over the world react to political events or natural disasters. It’s also an easy way to drive yourself crazy, and make emotional decisions that can negatively impact your long-term interests.
When investors try to react to what the market is doing at any given moment, or to whatever global event has shaken averages on a particular day, they’re engaging in a strategy called market timing – trying to get the most they can out of what’s happening, right now. This is very different than the engineer or the physician as referenced above giving their all to their clients or patients. But it can sometimes be challenging for fiduciary advisors to help those professionals understand the difference. Adjusting your projects or patients’ treatment on an immediate basis is prudent and necessary. Adjusting your financial future because of an earthquake on the other side of the world or whispers from the Washington rumor mill may sidestep a winning strategy. In fact, it could potentially be a recipe for failure as an investor.
True success in investing cannot be measured over a week, month or even a year.
So, what is the difference? Volatility.
When we’re analyzing the markets, fiduciary advisors are considering a much bigger picture. At Keen Wealth, we generally analyze market cycles of three to five years when we’re making plans for our clients. Our analysis also takes into account how diversifying and rebalancing assets may play out across that same time frame, and the income needs and risk tolerance of each individual client.
And in the long view, the market, as measured by the Standard and Poor’s 500 Index, has risen over time. So while your project or patient might suffer if you don’t make immediate adjustments, many investors who rode out the market downturns faired better than many.
A shift in perspective: Business Needs vs. Financial Planning.
“My equities are going through a downturn, the market is suffering, the news is telling me the world is coming to an end, and you’re telling me the best thing is to stay the course or even add to the equities?”
“You want me to sell something that’s doing well and buy something that’s doing badly?”
Boy, I’ve had a lot of conversations like this with clients over the years. And I get it. Like I said, my clients are smart people. But it’s hard to keep our emotions in check when we look on our phones or the 24/7 news media and see our financial future trending down for the day. Rebalancing our assets by selling off good performers and buying assets that are down sounds counterintuitive.
But just because I know the math behind our financial planning projections, that doesn’t mean I could walk into an engineer’s office and understand the calculations behind a new power plant!
No matter how smart we are, our expertise is usually a lot more specialized, and limited, than we’d like to admit. We just wrapped a World Series that had the internet buzzing with every pitching change. But how many baseball fans do you know who could actually manage a Major League team? It’s fun to roar at our TVs every Sunday when our football teams make bad decisions, but could you really go under center?
Your financial future is just too important for armchair quarterbacking – I firmly believe that you need a pro. Time and time again at Keen Wealth, we see many successful, self-made investors amass their wealth by following a few simple steps: control what you can control, live within your means, save as much as you can, and have a pre-determined action (or non-action) plan during the inevitable market volatility that always comes around.
If you just can’t wrap your head around the unknowability of short-term markets and the inevitability of the long-term, schedule a talk with a fiduciary advisor. It may be that you should not be participating in the equity markets at all and in those cases, we will give that advice. Measuring the success of an equity investment over a short-term time frame produces a random result at best and at worst could set an investor up for failure – sooner or later. Understanding market cycles and being prepared to harness those cycles over time, with a measure of patience, could be key. You wouldn’t plant a garden and the next day dig it up to see how it is doing. Successful folks know that sometimes the smartest thing they can do is admit they don’t know, and learn from a professional that they can trust, and that has a real discipline. That’s one instance where your profession and your financial planning aren’t different at all.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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