Recently we’ve seen an increase in volatility in the stock markets which has impacted investors taking some risk to get a higher return. The positive news has included employment gains, wage increases, higher corporate earnings and for Alberta, higher oil prices. Offsetting the positive news are concerns over rising interest rates, trade negotiations such as NAFTA and US/China, other geo-political events, politicians, pipeline uncertainty and so on. How do we stay the course during volatile times?
Travel
Planning your financial future is like planning a trip. Suppose you decide to drive across Canada to Charlottetown. You could just get in the car and start driving east and eventually end up in Charlottetown. However, if you had a map or Google maps, you would likely get there quicker and maybe even enjoy yourself. The same principle applies to your financial destination. A good financial road map should get you there faster with less stress and a greater probability of achieving your life-planning goals.
Traffic
Sticking to your financial plan is like driving during rush hour. Many of us have gotten stuck in traffic. You’re in the right lane at a complete stop and it seems like the left lane is moving briskly. Your inclination is to switch lanes but the moment we get there, the lane stops and the one we were in starts moving. By picking a lane and sticking with it, you will likely get to your destination with very little difference in time and a lot less stress. In addition, just like in traffic, if there is an accident or the lane ends, you will need to switch lanes. In investing this would involve reviewing your plans and rebalancing your portfolio at regular intervals. Aside from that, you should resist the temptation to switch.
Construction Zones
Road trips can often take you through construction zones and detours. You will need to endure stop and go traffic and drive on roads full of holes and gravel. Experienced road trippers have left room in their plans to wait out the stops and learn to endure the bumpy roads knowing they will eventually end. Inexperienced road-trippers may get frustrated and, trying to avoid the construction, leave the road to try out back roads that lead them off track and lost. Investing is like road-tripping – to get where you want to go you need to drive through some construction zones and persevere through some volatility.
*The concepts for this Planner’s Corner were borrowed from an article I read about 15 years ago by Dan Richards, a well-known financial services speaker and writer.