The new year always seems like a great time to overhaul everything in our lives. Why not? It’s a clean slate. A chance for something different. The perfect opportunity to try and correct mistakes from the past year.
It can be enticing to do the same thing for your investment portfolio – turn it over, dump everything out, and try again. This may feel especially tempting during seasons of market volatility. But unless something has changed with your investment time horizon, objectives, or risk tolerance, there’s really no good reason to do it.
The market experienced an unusually long period of low volatility, so even seasoned investors may feel unsettled with recent drops. Keep in mind, though, volatility is a normal part of market cycles. As we head into a new year, it’s helpful to approach your portfolio and resolutions with a similar attitude:
Maintain perspective. Uncertainty is a constant, and downturns happen frequently. Unforeseen circumstances pop up, so sustaining new behaviors isn’t always realistic. Take a breath and keep moving forward.
Stay disciplined and set realistic expectations. Implementing a quick fix that doesn’t make sense for your long-term goals is similar to trying to time the market. It can be extremely challenging and could end up costing you in the long run. For example, on December 24, 2018, the Dow Jones dropped 653 points – its worst-ever performance on Christmas Eve. Just two days later on the 26th, however, the Dow added over 1,080 points – its biggest points gain in history.
Ask for help. Utilizing an advisor may help ensure your investment strategy aligns with your long-term goals, timeline, and risk tolerance. As with other goals in your life, this level of accountability can help prevent you from making emotional investing decisions.
Despite rising interest rates and worries about trade wars between China and the US, the US economy remains strong: growth is healthy, unemployment is low, the number of people working is rising steadily, and wages are up. As long as you maintain a strategy consistent with your needs and preferences, there is no compelling reason to change your investment discipline.
But it doesn’t hurt to check in on your financial goals and current circumstances – call the Shepherd Financial team to schedule your next review.
The Dow Jones Industrial Average is a widely-watched index of 30 American stocks thought to represent the pulse of the American economy and markets. Investors cannot invest directly in an index.
To our friends, family, and clients in Houston, know we are thinking of you.
Ten years ago, our country was on the cusp of a terrible recession. The housing market crashed, unemployment spiked, and American households lost trillions of dollars in net worth. Considering we are currently approaching 100 months of economic expansion, are we about to see another downturn? It’s the question market analysts keep asking.
However, retirement planning takes a backseat when faced with immediate issues like finding safe housing and bottled water. It’s completely understandable to feel frustrated, confused, and scared by the world these days. In fact, those reactions are a good sign of your humanity. But there are times when these emotions can immobilize us. We don’t know what to do, how to help, or where to turn.
Doing nothing, though, produces nothing – so how do we move forward? Start by choosing to believe small actions can create avalanches – history has proven this over and over. When you are feeling overwhelmed, consider these seemingly small actions:
Fear does its best work in the dark. So take an honest look at the problems in your life and name them. Understanding what you’re facing is important; turning a blind eye tends to increase the chaos rather than help defeat it.
Equip yourself. Gather resources, knowledge, and the people you need by your side. Be humble enough to ask questions, make connections, and invest time into understanding the roots of the issue. It’s much easier to fight a battle when you are adequately prepared.
Find your lane. You can’t solve every problem – that’s like using a sprinkler to stop a forest fire. But you can figure out where your strengths lie; investing deeply into one thing can then produce a powerful fire hose effect. And remember that each person is unique, so it’s ok your purpose and passion happen to be different than someone else’s.
And finally, persist. I know that sounds unfathomable when you’re trying to take down a mountain with a tiny chisel. But enough little chips over time matter. Your small actions will create an avalanche.
Whether you’re knee deep in water and not sure how to remove it or knee deep in debt and don’t know how to budget, remember there are people who are trained to help. Make the phone call. Accept advice. Take one small action.
Here at Shepherd Financial, we don’t like to make guarantees. There is too much uncertainty in life, people, politics, and the economy to promise we can give you peace of mind. (On top of all that, our compliance department simply won’t allow it!)
Rather than adopt a gloomy attitude about the whole situation, though, we try to live by some general rules of thumb when it comes to our investment management strategy. One of the most important is this: diversification matters. You’re undoubtedly familiar with the idiom, ‘Don’t put all your eggs in one basket.’ Well, that’s diversification. It helps you reduce the volatility of your portfolio over time by spreading your investments around and limiting your exposure to any one type of asset. The goal is to maximize return by investing in non-correlated asset types that would each react differently to the same event.
Of course, you should take both your time horizon and risk tolerance into consideration when thinking about your own investment strategy. And don’t forget that your time horizon will change. A reallocation of assets may make sense for you upon passing certain mile markers in your life.
Now remember: neither asset allocation nor diversification guarantee a profit or protect against a loss. But they may help mitigate the risk and volatility you experience in your portfolio.
If you’re already a diversified investor, you may be wondering about this discrepancy: the market seems to be doing very well lately, but your portfolio doesn’t reflect the same high numbers. There are two reasons: how you are defining the market and the very function of diversification. If you only look at the Dow, S&P, and other domestic stock indices, numbers are up. But many other asset classes have lagged. So while it can feel frustrating to not capture those market highs, your diversified portfolio is actually doing its job. Because of its diversification, it will likely never outperform the highest returning market index.
An underlying thread in how we think at Shepherd is, ‘It’s part art and part science.’ Whether that informs the way we advise plan sponsors regarding the design of their corporate retirement plans or individuals with respect to their investments, we know each situation involves unique factors and considerations. We believe our strength lies in taking deliberate time with our clients to understand those factors. As true in the portfolios we monitor as in the clients we serve, we know diversification matters.
Before investing, consider the funds’ investment objectives, risks, charges, and expenses. Keep in mind, investing involves risks. The value of your investment will fluctuate over time, and you may gain or lose money. Asset allocation and diversification do not ensure a profit or guarantee against a loss. Past performance is no guarantee of future results.
In the financial world, we tend to think in quarters rather than seasons, use spreadsheets more than pencil and paper, and punctuate our speech with ticker symbols instead of adjectives. But Shepherd Financial is not your average retirement consulting firm.
Yes, our goal is to create retirement-ready individuals – whether that’s through our 401(k) plan participant engagement meetings or individual wealth management process. Our team is always focused on providing amazing, intentional service. What really differentiates us, though, is our desire to prioritize people, as well as their stories, lives, and goals.
We know that while not much actually changes between December 31st and January 1st, most people view the turning of the calendar page as their chance for a fresh start. The new year lies ahead, open and unblemished. If you are ready to charge into the new year with guns blazing, we applaud you. Take the world by storm!
But for others, the new year creates anxiety. And if you are one of the many people who experienced a tumultuous 2016, you may be looking back, weary and unsettled. Perhaps unexpected medical bills have financially swamped you. Maybe you are now responsible for the care of an elderly parent. You might feel uncertain about our country’s economic future. How you feel about these experiences truly matters.
And we know it can be quite common to let those feelings create a state of paralysis. Worry and fear twist in your stomach. You stop moving, and life simply happens to you. We get it. But know this: we see you, and your story matters to us. You are not alone.
If you’re hesitantly peering over the edge of the new year, our challenge for you is this: be the leading character in your own story. This will require turning hopeful eyes toward your circumstances, taking ownership of your situation, and making active decisions about what comes next.
You are not stuck unless you do nothing – so do something!
For some, that will include swallowing your pride and asking for help. Make the phone call you’ve been avoiding and set an appointment with a financial planner/counselor/personal trainer/doctor. Yes, it’s hard, but it is necessary to move forward.
Other people will need to take a long look at spending habits and commit to doing something different with finances this year. Maybe it means cutting up your credit cards, or perhaps it involves creating a budget and carefully tracking expenses in order to get out from under a weighty mountain of debt. Financial freedom won’t happen unless you deliberately work toward it.
Let 2017 be a year of positive change in your life. And if you need us to partner with you for either the first step or the long haul, our team is only a phone call away.