Financial Markets Are Complex

Financial markets are extremely complex and I find that when markets are positive for an extended period of time, we have a tendency to take more risk and gain a sense of overconfidence.

This point was proved to me, when a few clients of mine recently called to discuss abandoning their long term strategy to invest in highly complex instruments to chase higher returns.  They suddenly felt they had a good gauge of the markets and can see the future.  

Sometimes overconfidence when investing leads us to making unnecessary changes to our portfolios. Changes, that unfortunately over 30 years will probably do more harm than good.

Thankfully, in the cases of these few clients, rational minds prevailed and my simple advice helped them stay focused. But it did get me thinking.

Why is “simple advice” so much harder to accept?

I think it’s because we all want to be  in control.  It just feels better if we are the ones rowing the boat into the horizon of our financial future instead of allowing the tide to raise all ships.

 In other words, its hard to comprehend giving control to another “force”or “entity” to help us reach financial success.  

Because of that we are constantly looking for instant gratification.  More buttons to press and trades to make…

While in reality, more time should be spent on selecting the right LONG TERM positions of our portfolio rather than the sexy hot tip of the week.

Those long term positions should make up the asset allocation that is most appropriate for our goals/risk tolerance/time horizon!  (To learn more about asset allocation read a previous post that I have written here. )

But I get it.

I understand, like with other things in life, many of us  want to tinker and play around.

But to me, your investments, your financial future is WAY to important for that kind of horseplay.

So buckle down, follow simple advice and let the current guide you!

…….But I’m not a total jerk and I understand the need to have more of an active role in your investments

So, I have created a short list of things you can do to maintain an active role in your investment strategy that should work with your long term plans without feeling like you are allowing something else to control your financial future.  

Simple Investments and Simple Advice

1. Have an open an honest discussing with your self about how much volatility you can handle  – how would you feel if you lost 20%, 30% or 50% of your money?  (you might need to take a questionnaire for this)
2. Open up multiple accounts based on different goals (retirement and non-retirement)– so you can put your money into different buckets and manage them appropriately. 
3. Educate yourself about the different asset classes available to invest in. Large Cap, Small Cap, International…
4. Decide if you want to dollar cost average or invest in a lump sum today
5. Put together a rebalancing strategy  (learn more here)
6. Continue to save regularly and add to your investments 
7. Update your risk tolerance as your timelines get shorter

These 7 items should give you plenty to do and are simple and effective.  These are things that need to be done on an ongoing basis so you will always feel like an active participant in your investments!

As always, you can consult with me to discuss  your investment strategy

Look for future posts on the best ways to build a retirement portfolio  and check out my recent post on 8 Investing Mistakes!

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Thanks for stopping by and I hope you achieve financial success!