Red. Lot’s of red. Every day the market is open the past few months have been filled with red numbers, down arrows, pessimism, and negativity. Feeling emotional about our investments in times like these is completely normal. You’ve worked hard for your money and to see it all trend downward is frustrating. And although frustrating, that doesn’t mean we ditch our core principles and beliefs because of short term results. It’s times like these when we need to stick to our investing principles and beliefs the most. And that’s what we’re going to do today. Let’s take this opportunity to revisit our core investing principles and beliefs to put ourselves at ease and to make sure we’re not making any emotional, short term decisions with your money. So, with that said, let’s go through the Branson Financial Planning investing principles and beliefs.
- The first one is more of a belief than a principle and it’s that markets are resilient. We’ve been through multiple world wars, pandemics, dot com busts, housing crashes, stagflation, depressions: we’ve seen market turmoil in many different ways, and we’ll continue to see it in many different ways moving forward. BUT, the stock, bond, real estate, commodities, you name it: all of these markets have come out on top and we continue to see all time highs. The all time highs don’t come consistently, but they do happen and, in my opinion, will continue to happen.
- Next up, this one is one of my favorites, time IN the market beats timING the markets. Trying to consistently beat the market through picking stocks is incredibly difficult to do over time. There are a select few who have done it, but they’re outliers. We believe that having a diligent long term focus will bring success to an investment plan. That means sticking to your plan in the face of uncertainty and staying invested when the waters get rough.
- Next up, diversify your investments. Individual stock picking is exciting but also very risky. Diversifying means not putting all your eggs in one basket, but instead spreading your investments around many different baskets to ensure if anything happens to anyone one investment, you won’t be catastrophically hurt. We won’t get rich overnight with this approach, but we will slowly build wealth over time.
- Diversifying leads into the next principle or belief: Asset ALLOCATION drives returns. Allocation refers to your mix of stocks, bonds, cash, real estate, crypto, and everything in between. How you allocate among the different types of asset classes will really depend on your goals, objectives, and overall timeline. A 100% stock portfolio will have a different goal than someone with a 100% bond portfolio. You have control over this and you should be allocating your investments to your own timeline.
- Zooming out from asset allocation, we have asset LOCATION directing our taxes. Asset location has to do with the type of account your money is invested in. Is it pretax, tax-free, or after-tax. There’s no right or wrong answer here, but this does have an enormous impact on your financial tax situation. For example, putting all your money pretax gives you a bigger paycheck today but also kicks the can down the road with taxes. And the opposite is true, doing 100% Roth savings pays the taxes today giving you more tax free money in the future. Which is right for you is a personal decision, but should be discussed based on your personal situation.
- The next one is pretty straight forward: keep costs low. Nobody likes paying fees and you should be aware of the fees you’re paying to ensure you’re really getting the value you deserve. Mutual funds and ETFs, for example, have underlying expenses called expense ratios. It’s the cost to participate in the fund and can vary wildly from .01% to over 1.00%. Keeping costs low puts more money in your pocket at the end of the day.
- Next up, avoiding investment fads. Or in other words, avoiding media hype and distractions that fill headlines everyday. Everyday there’s a doom and gloom headline saying the world is going to end. Or an article that says “you need to be in this stock and if you’re not, you’re an idiot”. The point is, avoid these headlines and stick to your core principles.
- The next one seems silly, but is also another favorite of mine: you have to have faith in the future. You have to believe that overall humanity is on an upward trend. Yes, things happen in the short term that are awful. But overall, investing, and really life in general, is easier if you have faith that tomorrow will be better than yesterday.
The Paradigm Shift Takeaway
And that’s it folks! If you don’t have a set of core investment principles to fall back on, maybe this is the time to write some down. As the saying goes, a goal without a plan is a dream. If you have any questions, please reach out to us. We’ll see you out there!