The market does not care about the investor - yet many of us rely on it to build wealth. Portfolios designed to beat market benchmarks may not be ideal for the individual investor. We can't base our financial success on the over/under of the benchmark, we need to be goal seekers.
Shifting your portfolio from a focus on the securities held to a consideration of your personal objectives will empower you to benchmark your personal success based on whether or not you achieved your goals and not how the S&P preformed. Imagine your wealth organized into three parts:
- Achieve Financial Security: Protect a basic standard of living holding low-risk investments, accepting a lower return.
- Maintain Your Standard of Living: Saving and investing into a well-diversified portfolio in line with efficient market performance.
- Create Wealth for your Aspirational Goals: Seek significant wealth mobility by pursuing higher-than-market returns, often by taking higher and more concentrated risks.
There is no point in spending a lot of time observing and worrying about the daily fluctuations of the market, because you can't control them. Whereas you can control how you prioritize your goals. Investing is really about understanding the assets you hold and why you're holding them, and then staying true to your investing discipline.
When you base your approach to investing on reaching personal goals, you ask a number of very important questions. What is it you must have? What do you aspire to? For those things you must do, such as saving for retirement or funding your children's education, the emphasis is going to be on lowering the risk of your not achieving these goals. The goals you aspire to--your passions, the things that make you tick--may require a somewhat higher level of risk.
But your advisor can help you articulate your goals, work with you on an investment strategy, and communicate with you over time to help stay on course.
That means not just suggesting appropriate investment options but also adding perspective in volatile times. When markets go up, you may be drawn to taking extra risks to avoid losing out; when they go down, you might get scared into taking overly conservative positions. Your advisor is there to help keep the focus on the long term and to ask whether your decisions support the vital things you want to achieve in life.
Jennifer Peterson, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).