As a trusted financial advisor, I am asked a variety of questions every day. If I move to Florida, how will that affect my retirement plan? Should I take Social Security at 62 or wait until 66? Why is long-term care so expensive? The questions are about a large number of topics, but they do tend to follow one of two themes. The first (and my favorite to tackle) is “how will this decision affect my financial plan?” The second is the one I dread getting at chamber of commerce events and family parties alike—“should I invest in (blank)?”
Blank, of course, can be almost anything. A few years ago, it meant gold. Before that, it was real estate. I also get questions about specific stocks. I am by no means complaining—we love questions at The Krajniak Group. It is worth noting, however, that these inquiries are always rooted in the search for a quick buck. In other words, I’m always asked, “Can this investment make me rich?” and never “Should I look at this as a way to diversify my holdings?”
We try to remind our clients that get-rich-quick schemes can backfire, so it’s best to keep your eye on the ball. A good financial planner will do his or her best to help you look at investments objectively. In general, I believe that it is not possible to time the market. That is, I don’t think anyone can pick the day that the market will have a correction or choose the right time to put funds in. Those that have had some success at this have been, in my opinion, plain lucky. “Gee, Matt, if everything is a terrible risk and we can’t time the market, why even bother?!” you might ask. Good question. Let’s look at what you can control:
While we only have historical data to use as a guide, it is possible to statistically improve your chances that you might not lose as much money in an unfriendly market. By having investments that aren’t highly correlated with each other, you can reduce your odds of losing money and even potentially increase your long-term returns. The Krajniak Group has been researching software and investing in ongoing education to help you accomplish just this.
You can also control your decisions such as how much to spend and when. It’s worth remembering that investments in securities are only a portion of your overall financial plan. They are tools that you have available that have the potential to grow your assets. How much your assets might grow depends on a number of factors such as time frame, cost, available options, and how much volatility you can stomach. A full financial plan should take into account your goals. When will you use your money? How much will you need? What would you spend it on and how important are those goals to you? What could go wrong?
It’s wise to have such a plan in writing. The logical place to start is to put numbers to what you are trying to accomplish. Hypothetically, if you could achieve everything that’s important to you while keeping your money in an FDIC insured account, is it worth it to take any risk at all? On the other hand, if you must choose between taking some risk or having a significant chance of running out of money if you don’t, how do you decide what’s appropriate for your family? Having a written plan can help you identify and measure your goals. It can show you obstacles that may come up and identify questions you should be asking. Most importantly, it provides a reference guide that you can use to determine whether a given idea makes sense. You would also have a yardstick to measure your progress. Having a 9% rate of return for a year might sound terrific, but what if you actually need 11%? It could help you to know whether you could retire tomorrow or if you should put in for some overtime. It can give you the confidence to make the decisions that are most appropriate for you.