Prudent Investing: Keep Calm and Carry On

March 21, 2017

The discipline it takes to be a prudent investor, especially during times of heightened uncertainty, has been a common theme in many of our conversations with clients lately. Emotions can run high; it is a natural response to find yourself tempted into taking action. The non-stop news cycle and the siren call of social media updates also help fuel this sense of urgency.

At times like these, we are often asked to share our insight on navigating challenging environments and what we’ve learned from three decades in the investment management business. Here are a few things we believe investors can do to help instill a long-term mindset:

  • Orient your thinking around the concept of lifetime investing. That’s the timeframe that is meaningful when you are investing over a lifespan or the multiple lifetimes involved in leaving a legacy for the next generation. Against that backdrop, the types of decisions you make and the actions you take would, and should, be different than those you would typically consider when planning for a shorter timeframe.
  • Create and adhere to preset guidelines on when to take action and when to hold steady. We believe in the importance of finding an investment philosophy that resonates strongly with your values and goals and is grounded in sound investment theory. We have an investment philosophy and a set of values that guide our portfolio management through thick and thin. We may adjust our process from time to time based on new insight or significant developments in the investing environment, but we are always grounded in our fundamental investment beliefs and philosophy. We believe this discipline is a key component of the value we provide clients.
  • Manage your news intake. The 24-hour news cycle has a downside. It creates a recency bias that can contribute to performance chasing. You may be tempted to give up too soon when an investment disappoints or become susceptible to “the grass is always greener” way of thinking. The result can be too much buying high and selling low. That kind of reaction eats into your returns, generates transaction costs and taxes, and is inconsistent with achieving long-term financial goals.
  • Regularly review your investment philosophy and values, long-term goals, and risk tolerance with your advisor. This helps you internalize your goals and remain consistent in your process, so that thinking about investment decisions in this context becomes second nature.

Finally, think of our team at Litman Gregory as your sounding board and advocate, helping you weigh your natural impulse to act against your long-term goals, work through strategies, and keep your investment decisions and portfolio on track.

Do you have more questions or want to discuss the topics covered in this post? Please call your Litman Gregory Wealth Advisor or contact us here.

 

 

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