Ray’s Take: It’s common among investors to fall into the “short-term mindset” with investments. The financial media tends to make things worse. If you do not see the returns you want on cue, you decide to move your funds around to the ones that are showing higher short-term returns.
The danger of short-term thinking is that you might have gotten restless when you didn’t see big returns and decided to part with your stake. The daily quote makes it seem like the value is staying the same. This business is getting better and better behind the scenes in a way that’s not reflected in the short-term returns you’re obsessing over.
There are always going to be fluctuations – that’s just the way the investing world shakes out. The behavior of the stock market is inherently so complex that no single variable – or person – can predict how the market is going to behave next or what would be its future returns – at least not on a regular and consistent basis.
The market swings like a pendulum from optimistic to pessimistic, and sometimes overshooting the mark can cause a panic or greed reaction. Be wary about promises of big returns. They usually turn out to be for the person promising them and not for you.
Think about and settle on a long-term portfolio. Once you’ve done that via a good financial adviser, it’s best for your accounts if you stop looking at them. Delete the bookmark from your web browser. Limit yourself to one peek per quarter and only one or two changes per year. Check it at the one-year mark and rebalance it. Move the amounts around in such a way that the money is back at the percentages you want.
Allocating your assets across financial markets is always a smart decision. But being realistic about your expectations is the most important step in achieving success in the financial markets.
Dana’s Take: Being realistic about finances is something we all need to be aware of. Not only about returns on our investments, but about finances in general.
Having ideas of living the life of your dreams in your golden years is great. You may want to retire in five years. But, you only have enough money put aside to last you 10 years.
Is it realistic to think you can save enough money in five years to last for 30? You need to be realistic about where you stand right now, and about what actually needs to happen if you want to make your financial dreams come true.
You may still be able to live the life of your dreams; you’ll just have to save a bit longer to make it happen.