We have heard this concept for years, and while in theory this seems very simple, it is quite difficult in practice. Think about these past few weeks, where a large number of schools and businesses have moved to remote operations, rendering us confined to our home. With nowhere to go, we find ourselves watching the news and scrolling through social media for the umpteenth time to pass the day. And while this may seem harmless, it can help feed the notion of fear, jealousy, and a myriad of other emotions.
This is not to say there is anything wrong with these feelings, these are natural and normal and consistent with the functions of the human brain. However, during these times is when many individuals make irrational and emotional decisions based on what they are hearing or reading, as opposed to making logical and informed decisions based on what they can control. At FivePoints, we believe that investment management is a critical piece of any financial plan, but is certainly not the most important or the highest value service (View Our Investment Approach). Decisions made related to your investments can have a profound and long-lasting impact on other areas of your financial life, which is why it can be critical to understand and devote time to the things you can control.
You Cannot Control- The Economy: Who predicted 6 months ago the recent COVID-19 pandemic would wreak havoc on the US and global economies? Maybe Miss Cleo (Bad Joke)? There are both leading and lagging economic indicators which attempt to provide an accurate assessment of the economy, but even with all this data many times these forecasts prove to be futile. While the human brain craves certainty, it is very difficult to predict the future economic outlook.
You Can Control- Your Human Capital: There is probably no wiser investment in this world than that of yourself. Advancing your education, skills, knowledge, and training to increase your lifetime earnings and substantially improve your way of life provide both financial and emotional reward.
You Cannot Control- The Stock Market: Each day, hundreds of billions of dollars are traded on exchanges across the globe. Each investor/mutual fund/pension/endowment participating in the markets have different time horizons, objectives, risk tolerance, etc. which can affect daily price fluctuations and values. How each of these entities react to market news can impact the market as well. Watching the market on a day to day basis is exhausting, and adds no value for the long-term investor. Nobody can accurately predict how the market will react to certain situations, what the short-term returns will be, or when is the best time to pull out of the market and subsequently jump back in. Focusing on these aspects of the market will cause confusion and an unnecessary sense of urgency, which can lead to unwise and irreparable mistakes.
You Can Control- Allocation and Fees: As mentioned above, the market can be highly volatile, particularly in the short-term. Investing in a globally diversified portfolio consistent with the level of risk you are willing to take can help provide a buffer from this volatility and significantly increase your ability to achieve your stated financial goals. Also, even with many custodians moving to zero transaction fees, there are still other hidden or less known fees related to investments, such as turnover ratio, bid/ask spreads, and internal costs (expense ratios) for mutual funds & ETF’s. These fees can add up and greatly reduce your return on investment. When it comes to investing, I am certainly of the opinion that less is more, meaning the less you tinker with your portfolio the better, as it requires you to remain disciplined in your approach and reduces associated costs.
You Cannot Control- Political Outcomes or Decisions: Yes, you can (and should!) vote for politicians who you believe are best representative of you and your values. But regardless of the outcome of any such race, the immediate and direct impact to your personal finances and investing/savings is typically minimal.
You Can Control- Goal Setting: These can be short-term goals such as buying a house or saving for a vacation, or long-term such as retirement or starting a business. Achieving these goals is fully within your realm of possibility and with a plan and discipline can become a reality.
There are certainly many other aspects of our life which we have no control over that occupy our time, but these are a few which seem to resonate with your personal finances. We hope this was helpful, for more information please feel free to contact us at 404-907-0070 or firstname.lastname@example.org
Andrew Langdon is a fee-only financial planner based in Peachtree City, GA serving clients in the Greater Atlanta area. FivePoints Financial Planning provides financial planning and investment management services to families with young children. Services are offered on a project or ongoing basis.
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Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for purchase or sale of any security, or investment advisory services. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Andrew Langdon, and all rights are reserved. Read the full Disclaimer.