08 Sep Financial Planning Strategy – Staying The Course
From trade wars to Brexit, North Korean tensions to Italian political turmoil, we’ve had plenty of noise to deal with.
So, what do we mean by “staying the course”? Focusing on the financial goal you set in the first place and ensuring your behaviour aligns with it, instead of taking the easy route and sitting still.
Therefore, it is vital that as investors we remain vigilantly aware of how animal spirits can drive irrational decision-making, and that instead, we adopt a reasoned framework for investing. Behavioural errors can wreak havoc on long-term portfolio returns due to excessive and unjustified turnovers.
A Step-by-Step Guide to Staying the Course
The best thing an investor can do when contemplating change is to reflect on their goals. Would the investment change align with the original investment plan for reaching well-defined goals?
Step 1. What’s Changed?
The key question to ask is whether anything has fundamentally changed since setting the original strategy or whether you are disappointed with the progress towards your goals.
Step 2. Write the Change Down and Evaluate It
If something has fundamentally changed, the next question to ask is whether you can clearly identify what has changed. Write it down, then balance this by writing what it might mean if you’re wrong. This should include any misjudgement risks as well as the added costs if you decided to change investments.
Step 3. Decide the Worth
You will often find that the change you desire is not necessarily going to increase the probability of reaching your goal/s. If it has “just” disappointed you, but nothing has fundamentally changed, the likely best option is to stay the course.
By thinking probabilistically and remembering that investment markets never move in straight lines, you may avoid the perils of trying to time the market.
Furthermore, you may benefit by doing the opposite to your intuition (given the evidence against it) and teach yourself to be a contrarian.
How We Think about Staying the Course
The team at Master Your Money Now are critical and rational financial planning strategists based in Geelong but service all Australians and understand individual situations.
As professional, multi-asset investors, we focus on the investment objective, always bearing in mind the opportunity costs and risks involved. We also write down a balanced thesis that ensures we remove any emotion from our decision-making.
In this sense, staying the course is not idle or passive, but rather about staying aware.
Staying the Course vs. Timing the Market
Investing, like many things, often involves taking the thorns with the roses. Over dozens of years and through all investment literature there is one golden thread–the evidence clearly favours time in the market over timing the market.
- As the old saying goes, time in the market is generally superior to timing the market. Yet, investors tend to have a bad habit of buying winners too late and dumping losers too soon.
- Staying the course does not necessarily mean sitting still. It means avoiding bad behaviour, remembering your goal and ensuring you approach markets with discipline.
- Creating a financial strategy with a financial planner will help avoid those rash and animalistic decisions.
If you would like some further reading on financial planning strategies please check out the following resources:
1‘A Stay of Execution’ by Stewart Alsop (1973)
Don’t Know How to Start?
If you are keen to get started in investing or are wanting to develop a financial plan to help you reach your financial goals, get in touch with the team at Master Your Money Now. Master Your Money now provides online and in-person consultations to help you develop the right financial strategy.
If this is a topic that you would like to discuss in more detail, please go to www.MasterYourMoneyNow.com.au/getstarted to book in your complimentary 30-minute strategy session.
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Disclaimer: This information is general information only. You should consider the appropriateness of this information with regards to your objectives, financial situation and needs. Past performance does not guarantee future returns.
Chris Carlin is an Authorised Representative (No. 1235031 for financial services and No. 514748 for credit) and Master Your Money Now Pty Ltd ABN 65 627 229 681 is a Corporate Authorised Representative (No. 1265677 for financial services and No. 514747 for credit) of Infocus Securities Australia Pty Ltd ABN 47 097 797 049 AFSL and Australian Credit Licence No. 236523