How Investing Should Be Like Summer

Jul 9th, 2017

Ed Snyder, CFP®, ChFC

Ahh summer. The time when it seems like we all relax a little bit more and life is a little more simple. The kids don’t have to be up and out the door for school before the sun’s up. No school lunches to be prepared or field trip permission slips to remember to sign and turn in. No homework to do or after-school sports practice or band practice or whatever other number of extracurricular activities your kids may be involved in.

With this being said, if you’re like my family, summer is anything but laid back. Although the routine is different from the school year, it’s still not activity-free. There are swimming lessons, camps, off-season sports workouts, gymnastics, and on and on. Even though it’s still busy, summer just has a bit more leisurely feeling than the school year. We don’t have to pay attention to all the details every day like preparing school lunches for the kids every morning or being in the carpool line at the same time every day. We can sleep a little later, the kids can play outside until it’s dark and stay up later because they don’t have to be up at 6 the next morning to get ready for school. Overall, summer is just a little more laid back than other times of the year.

It’s not this

Your investing should be more like that. It should be more like summer. A little more laid back. In my experience, too many people think investing is about things like picking the right sector to be invested in NOW or figuring out what the market is going to do because ______________ (fill in the blank).

The market is so high right now

The new president

What the Fed might do with interest rates

I just have a feeling

Contributing to this, or perhaps the very cause of it is the financial media’s relentless spouting of market predictions. If you look at different stories from newspapers, magazines, social media, cable networks, and the internet you would think that it’s necessary to know where the market is headed and why so that you can invest accordingly. It’s not hard to find these stories. Quite the opposite, they are the predominant type of story in the media. Look at some of the headlines I quickly found today.

Track the Markets: Winners and Losers – This was a listing of year-to-date performance of different stock and bond indexes from around the world. You don’t really need to know that. Are you going to go change your 401(k) investments tomorrow because of what you see in a listing like this? You may. And if you do, it will likely be to your detriment.

5 Hot Consumer Stocks to Buy – Beyond Amazon – This article profiled 5 consumer stocks that have done well so far this year and, according to the article, “continue to hold promise for the rest of 2017”.

Here’s a Case for Bailing on Stocks as Warning Signs Stack Up – This details multiple reasons to be worried, from peak auto sales, contracting consumer credit to a lack of progress in Washington.

Global Stocks Post Strongest First Half in Years, Worrying Investors – So this one starts out positive but then leaves the reader thinking, should I be worried?

It’s this

If you want to read things like this, I guess, go ahead. I don’t understand what you get out of it. It definitely should not influence your investing. To make your investing more laid back, like summer, you should own a portfolio of investments in multiple asset classes, both foreign and domestic, while minimizing taxes, trading fees, and other costs. Ideally, your investing is informed by your financial plan. Your financial plan details your different financial goals – things like money for retirement, college expenses, replacing income if a spouse dies. If you have a financial plan you can invest accordingly based on each of those goals.

Your investment strategy is part of that financial plan. Your investment strategy should include things like:

A target percentage that will be invested in stocks vs. bonds

A target percentage to be invested in each different asset class, like large cap value, real estate, international, etc.

A tolerance range for how much you want to allow an asset class to vary from those targets before you make changes to bring it back to the target amount.

If you decide these things up front as part of your investment strategy you don’t make changes to your allocation because you read an article where some guy thought small growth stocks were going to out-perform. You only change based on evidence. What do I mean, evidence? If small growth is to be 8.75% of my portfolio and it’s been decided that I’ll allow it to deviate from that by 20% either up or down, then that means if the small growth part of my portfolio drops below 7% or goes above 10.50% then I will make changes when that happens. If small growth does well and grows to be more than my 10.50% target then I would sell enough of it to get it back to 8.75% of my portfolio. If it came to make up only 7% of my portfolio then the evidence would be there for me to buy more of it to get it to the 8.75% target. That article you saw where the guy said small-cap growth stocks would out-perform – that’s not evidence. When your investment strategy is evidence-based you are making changes when the evidence presents itself. It’s binary – like my example above, it’s either within its tolerance range or it’s not.

When you invest like this you can stop trying to figure out where the market is going. You can stop worrying about the daily fluctuations and watching the headlines and so-called experts. If you’re a long-term investor none of that stuff matters.

Investing doesn’t have to be complicated. It should be simple.

Do the work up front. Get a good financial plan and a well-thought-out investment strategy in place. Then treat your investments like your summer break – chill out and be more laid back!

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