Tips to help you maintain your long-term financial strategy

Each individual has a unique set of long-term financial goals. And no matter what happens in the markets, those goals are unlikely to change. For example, you’ll probably still want to send your kids to college, buy a house, enjoy a carefree retirement, or preserve an estate to pass on to the family. The next generation. When you started investing, these goals helped determine the investment mix of your portfolio and set in motion your financial plan for the future.

Despite the best-laid financial plans, short-term fluctuations in the markets can happen – and they can be stressful. This stress and anxiety can lead to poor decision making, driven by a desire to avoid further loss. Such decisions can ultimately have detrimental effects on your long-term financial goals. That’s why, when markets are bumpy, it’s essential to maintain a forward-looking perspective and avoid behavioral biases when investing.

If you’re committing to long-term goals, it’s important to properly contextualize the signs of potential market danger to avoid deviating from your plan. The goal is to stay the course long enough to reap the benefits. Here are some tips to keep in mind:

Learn to look beyond short-term noise

Times of market uncertainty are never fun. They are often marked by strong selling and alarming headlines that can make even the most stable investors uneasy.

At times like these, it can help to remember that short-term swings are normal and markets tend to gravitate higher overall. The specifics behind a change in the markets are always different. But these moves rarely have a lasting impact on the overall trajectory of the market.

Growth of $1,000 over 20 years

Source: Fact Set. S&P 500 Index. Data from January 1, 2002 to June 30, 2022. An investment cannot be made directly in an index. This graph does not reflect transaction costs, investment management fees or taxes. If these costs and fees were factored in, returns would be lower. Past performance is not indicative of future results.

Avoid emotional decision making

A forward-looking plan requires a disciplined approach because when the value of your investments fluctuates – and they almost always will – it’s hard not to let your emotional side take over.

When the markets fall and the value of your investments declines, you may become anxious or worry about the impact this will have on your overall financial well-being. As difficult as it can be to see the value of your portfolio drop, try to think about the long-term implications. Asking more general questions can help distract from short-term discomfort.

Time in Market vs Timing in Market

Sticking to a solid financial plan and staying invested no matter what the markets do can better support your ability to succeed over the long term than trying to time the market. Maintaining your investments helps smooth out the ups and downs that are inevitable. A disciplined approach to regular contributions can often be the best way to achieve your long-term financial goals.

Adjust your plan accordingly to meet your changing needs

It’s important to remember that your plan is dynamic, not static. Three questions can help you better determine your needs.

1. What budget have you planned to build your estate plan?

For example, if you’re worried that you won’t have enough income to meet your retirement lifestyle needs, one option to consider is adjusting the amount of your contributions to your retirement fund on a regular basis. A relatively small increase in regular contributions can be manageable in the short term and have a significant long-term impact.

2. What is your schedule?

Another option is to expand your time horizon. This could mean postponing retirement or re-entering the workforce and embarking on a second career. On the other hand, if you feel you have enough wealth to meet your retirement needs, you may be able to shorten your investment schedule and retire earlier than planned.

3. What risk should you take?

Your risk profile is an essential part of your wealth plan. This third question therefore needs to be treated very carefully, especially in the context of market movements. The best way to do this is to review your plan regularly with your advisor.

Keep calm and stick to your strategy

Even if you are committed to carrying out your strategy, you may need to periodically check and make adjustments. Many advisors have been through several market cycles and have had difficult times before. Having an objective advisor who can share their expertise and support you with advice during difficult times can be extremely helpful in keeping your plan on track.

Staying invested for the long term is a proven approach. It’s an easy strategy to follow when the markets are up, but crucial when the markets are falling. By thinking long term, you can keep an eye on the price as you work towards your financial goals.

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Don F. Davis