But truly successful investors have a unique mindset that helps them deal with market gyrations.
Their special way of coping with market turbulence helps them stay invested for the long-term so they can reach their ultimate financial goals.
What’s their secret?
These successful investors have learned to distinguish between what they can control and what they cannot. They focus their efforts where they can truly make an impact, and refuse to lose sleep over the things they can’t do anything about.
As an investor, it’s not productive to agonize over the things you can’t do anything about, like:
- Whether the stock market goes up or down
- When and if the Fed raises interest rates
- Market volatility
- Government policies and tax regimes
But there are many other things you can control that will have an even greater impact on your outcomes. Whether the market is up or down, you can shape your own destiny by paying attention to things like:
- How much you spend and save
- Picking the right investment allocation suited to your personal risk tolerance and goals
- Diversifying to reduce risk, and rebalancing periodically
- Using sound tax strategies to minimize what you owe Uncle Sam
- Maximizing your earning potential by building up your skills and credentials
- Sticking to your investment plan by minimizing market “noise” and avoiding media-driven panic
Take our clients Greg and Susan (we’ve changed their names for privacy reasons). When we started working together, we carefully crafted an investment strategy based on their unique risk tolerance and need for long-term growth.
We calculated how much they needed to save each year until they retired, and in what accounts. When they retired, we devised an income plan showing how much they could spend each year on a sustainable basis, without the risk of depleting their assets. And we talked about where and how they wanted to live, so they could visit those places they always wanted to, and pop in on the grandkids at least twice per year.
These are all things that matter, and that Greg and Susan can control and shape.
But what the market does once they retire is not something they can control, and that’s actually OK.
Their investment strategy already tells us how to invest their portfolio so they can get to their goals. We don’t need to change the plan day-to-day depending on the level of the Dow index. And in fact, if we did, their overall outcome would probably worsen, because real-life research shows that constant “tinkering” with the investment mix makes it worse, not better.
We can’t change the way things are. But we can craft a strategy to succeed regardless of what the world dishes out.
So rather than obsessing over the market, plan your strategy, put your resources to work, and set a long-term course. You’ll find that the market will take care of itself.