How does a long-term investor keep perspective in a world that is driven so significantly by short-term events? This question has taken on added importance with the recent events in the world financial markets. As I write this, however, I am thinking about more than just the recent events. I’m thinking about the “crises” we’ve seen before, and the ones we are sure to see in the future.
I was driving my thirty minute commute to work last week on a day after more bad economic news came out about jobs and loss of national equity. It was interesting to observe the world without the filter of CNBC, CNN or Fox News telling me how I should feel. I know this runs the risk of sounding overly simplistic, but it was a refreshing experience to be unplugged and to see the world through my eyes rather than a media filter.
Construction workers were busily working at constuction sites
The streets I traverse daily on my commute were being torn up by large work crews ready to lay new asphalt.
The Starbucks line was just as long as normal when I arrived to order my tall drip coffee.
Cars scurried into parking garages as attorneys, CPAs, insurance brokers, and dentists all went to work.
In other words, life was still moving in a normal fashion as people went about their lives. I am not being Pollyanna or naïve towards this crisis – just attempting to untangle the “real” crisis and problem from the one that is spun through the numerous communication mediums and talking heads.
As a way to bring clarity to the situation, let me offer the following three suggestions:
1. Be Careful Where and How You Spend Your Time and Energy
We can choose to focus our time and energy on things we can impact and where we can create positive outcomes in our financial lives.
When I was a young and struggling stockbroker facing the October 1987 stock market crash I was fearful, speechless, and frozen as I watched the news unfold. My branch manager at the time suggested that I turn off
the Quotron (stock market screen back in the day) which I was glued to and get out of the office to meet with clients and reach out to other nervous investors who needed advice.
That simple nudge changed my focus which gave me hope, changed my attitude, and in turn started building my confidence. I was moving again even though it was a very difficult time.In difficult times, the pull to “watch the news” is almost insurmountable. It is easy to forget that what we are watching is not necessarily what is actually happening.
So while I certainly wouldn’t tell you not to watch the news or keep abreast of what is happening, remember two things:
- life is still going on, so don’t miss it; and
- we’ll never really know what is happening until after it happens. This is true in difficult markets like these as well as in hyper-growth markets as occurred in the late 1990s.
2. Have a Dashboard That Tells You Where You are Relative to Where You Need to Be
You need to have a dashboard and warning systems that can alert you to potential financial problems or to communicate that despite what is happening there is nothing to worry about.
Think about your car for a moment. I’ll bet you don’t worry about your engine oil unless the warning light comes on. On my car, there is even a warning system for tire pressure. With all these systems and gauges I can be confident that I’ll safely get to where I need to go. If the dash light comes on, I know what needs to be fixed.
What types of things should be on your financial dashboard? They can vary depending on circumstances, but here are a few worth considering:
- Cash levels and liquidity of your assets
- Debt percentage in relation to your total asset base
- Spending beyond your means
- Investment allocations out of balance with targets
- Investment performance that doesn’t meet expectations
- Safety of your principal (isn’t it interesting that this wasn’t even on most people’s radar a year ago?)
- Low savings rate
- Probability of achieving financial goals
3. Ensure That Your Plan is Constantly Testing Assumptions
It is imperative that your strategy and plan are able to test critical assumptions as circumstances change.
For instance, asset de-valuations, inflation concerns, rising education costs, and increasing tax rates can all impact the best laid plans greatly. In difficult times, it is easy to become myopic and to focus on singular types of risk.
Remember, systems operate holistically and each piece is intertwined. There is no better time than right now to run situational analysis on all your key assumptions so that you can be confident in your strategy and probability of financial success.
When you are able to keep financial news in perspective; when you are able to fully focus on the life you want to lead and the things you love without being distracted by unnecessary concerns; when you are able to develop financial plans with a long term lens knowing you are able to make mid course corrections, then I believe you will have found the kind of financial confidence that is real and not the kind that is found in sound bytes.
I’m reminded of a quote that I heard long ago:
“It’s never as good as it looks when things are going well, or as bad as things look when they are going poorly.”
That sentiment has never had more power than it does right now.
The last 10 years have shown us both extremes of the market. Those who keep perspective, remember what is most important, and ensure they have financial systems in place, will be the ones who enter the next economic phase stronger.
- Taking Stock of Your Life
- The Power of Authenticity
- Is It Time to Consider a Donor-Advised Fund?
- Money and the Pursuit of Happiness
- The Simple Truths About Financial Independence
3 Responses to “Three Success Strategies for Scary Times”
June 28th, 2009 at 9:03 am
Phillip Dunn Says:
John–Good advice, but I’ve got to tell you, it’s hard just to “hold” with the market dropping like it did in the fall. Luckily I did. Now when the market gets back close to where it was in October then I’ll be looking to see how I should rebalance.
September 11th, 2009 at 10:53 am
John Christianson Says:
Sorry for the late response. Getting this blog up and running was more than I thought….not an excuse, just a fact. Anyway, I appreciated your comment. I don’t believe “holding” is what I am saying. The key is having a dashboard that gives you alerts, and also having the ability to test your changing assumptions. These factors should allow for changes to occur in both rising and falling markets. Without a system in place, you can feel holding is the only decision, or potentially worse, making emotional decisions that aren’t beneficial long term.
September 17th, 2009 at 6:17 am
Reasons to Worry, Tools to Relax | The Wealth Clarity Blog Says:
[...] And for additional thoughts on how how to manage in difficult times, you may want to read my post from earlier in the year, “Three Success Strategies for Scary Times.” [...]