I recently had an enlightening conversation with a client who shared what he finds most valuable in our relationship. He says he hired me as his financial advisor to focus on the details to create his financial plan and to ensure that he is on track to reach his goals.
Having a plan allows him to "think about the big picture of achieving my objectives and worry about very little else" -- yet this was not always the case.
We reminisced over the journey we have taken together. He shared how his financial concerns have ultimately evolved to a place where they no longer interrupt his daily life or consume unneeded mental energy. During our initial meetings, however, he wondered if I would be a trustworthy advisor and he was understandably apprehensive about the specific investment vehicles we selected, as investing was new to him. Soon after, he became preoccupied with the short-term performance of his investments and how the volatility of the global markets impacted his portfolio.
As we have grown together, he shifted his focus toward the plan we created that is specifically designed, and regularly updated, to meet his financial goals. Here's how we got there.
Investment selection. In our first meeting he was most worried about the specific mix of stocks, bonds, mutual funds and exchange-traded funds that we were going to select, and how risky those investments would be.
Initially, he shared he didn't really understand why we were focusing so much of our conversation on his goals as opposed to focusing only on the investments. We discussed how his goals, timeline for achieving each of those goals and his risk tolerance would determine and shape his appropriate investment mix. Without knowing what he is hoping to achieve, coupled with a timeline for reaching his objectives and how much risk he was comfortable taking along the way, we could not construct an appropriate asset allocation strategy.
Short-term performance. He says some of the angst he experienced in the years to follow was often driven by the most recent media headline -- the apocalypse of the day. He worried, for example, about how the results of a presidential election would affect his investments or what kind of impact economic instability in a foreign country may have on his portfolio.
Over time, we discussed how sensational news headlines are certainly attention-grabbing, but that it would be imprudent to let the "noise" of short-term events influence his long-term investment decisions. We regularly discussed how market volatility is a normal part of the investment process and, instead, agreed to focus only on what he could control. He was going to maintain a well-balanced, globally diversified portfolio built around his goals, risk tolerance and time horizon. He would invest regularly in good markets and bad and not worry so much about trying to time the market.
While it is still tough to stomach a short-term market decline, it makes it much easier to do when it is viewed as an opportunity to build positions in quality assets for the long term.
Sticking to and updating the plan. Through the years of market experiences, learning about normal fluctuations, he says that he now finds that the best way to focus his mental energy on his finances is to think about his financial plan. He has shifted his concerns and worries toward the big picture, as he calls it, and says that he "now can almost ignore the short-term ups and downs" as volatility is to be expected.
He likes to think about putting his children through college and getting ready for retirement. He has built up an emergency savings fund and has automated his savings to ensure he pays himself first before paying his other bills. My client, over time, has decided that he can focus on his goals and stick to his plan.
By doing so, as he puts it, he lets his advisor "worry about the rest."
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