It’s simple, what you focus on determines where you go. Consider the following tips about focus.  Are you a downhill skier? Never look at the tips of your skis. Always look ahead and anticipate your next turn.  Do you ride a mountain bike downhill? Don’t look at your front wheel. Visualize the trajectory ahead of you. You ride a road bike through a set of hairpin turns? Don’t worry about turning the handlebar.  Focus instead on visualizing your trajectory through each hairpin. 

In essence, don’t just look where you are going, focus on where you want to go.  Failing to do this can get you into trouble.  The sitcom Frasier has a perfect example of this process at work in an episode where Frasier learns to ride a bicycle. If you haven’t seen it, I highly recommend you watch it on youtube.  Fraser is afraid of hitting a sycamore on his path. But precisely because he focuses on the sycamore, he panics and keeps crashing into it. When he finally learns to avoid the sycamore, his colleague Julia warns him about a big mailbox, and you can guess what happens next. 

While we may laugh at Fraser’s misadventures, we all know how that feels. When it comes to investing, we are all subject to the same psychology. We tend to focus too much on short term performance, like monthly or quarterly market returns, while our goals may be 10 or more years from now.  The anxiety brought about by this focus on short term performance leads to bad decisions. And we hit the mailbox.

Financial commentators often act like Julia in Fraser’s, they play on our worries. Take the recent talks about renewed market volatility because of trade negotiations. Should we get out of stocks now that prices have dropped? And buy stocks again when the market goes back up? That does not sound like a good recipe for investment returns.  Do we even know the effect that trade negotiations will have for our goals? Unlikely. Acting on this type of beliefs is speculation, not investing. 

The reality is that volatility has been part of the stock market since we have recorded data. And why not? Markets rewards risk taking.

So should we do nothing? For most investors the answer is YES.  If the recent volatility is giving you anxiety, go back to principles. Why do you hold the portfolio that you hold? Go back to your investment policy statement. Are your objectives still current or has something changed? Do your investment guidelines still apply? 

Oh wait, do you know what an investment policy statement is? If not, that’s your real problem.  Many investors hold a hodgepodge of investments based on suggestions from coworkers, relatives, neighbors, or a self-professed financial guru. They never really stopped to seriously think about WHY they hold such an allocation.  Start with why, identify your goals and build a set of investment guidelines around them, taking into account your ability to take risk. Your values, goals, and risk tolerance are the foundations of your investment guidelines, or the investment policy statement. Write it down. If your portfolio is aligned to your investment policy statement, you are directing your focus to what really matters, your long term goals. Short term performance is just part of the process, not necessarily a reason for change.  

Find your focus, start working your own investment guidelines today! Download our guide to investing to learn more about our approach.

Until next time.

Massi De Santis is an Austin, TX fee-only financial planner.  DESMO Wealth Advisors, LLC provides objective financial planning and investment management to help clients organize, grow and protect their resources throughout their lives.  As a fee-only, fiduciary, and independent financial advisor, Massi De Santis is never paid a commission of any kind, and has a legal obligation to provide unbiased and trustworthy financial advice.

Welcome to our blog! In this first post we discuss the key principle of our financial planning and investment philosophy, the ability to take the long view. We choose this ability because it is the single most important skill to investment success.  If you think about it, it is the most important skill to achieving anything in life!

One of my favorite authors is Matthew Kelly.  He writes about many topics, including happiness and life satisfaction, and has written a short book with the title “The Long View.” The book is so good that I always keep copies for my clients.  Kelly describes the long view as a brand of wisdom that takes into account the effect that today’s actions will have not only in the present, but also far into the future, including your long term goals and life pursuits.  This concept resonates with me because in economics, we formalize it and apply it to the study of investment decisions, and at DESMO we put it to practice for our clients. 

We can all learn to take the long view. Every time we evaluate a decision “Do I need that second mountain bike?” or when something happens, “Argh, the guy just passed me and has now slowed down below the speed limit!” Let us pause to think about how it affects our progress towards long term goals, whether financial or otherwise. Putting things into the right perspective will help us make better decisions. 

Patience

One reason why taking the long view is the most important skill to succeed at anything, Kelly explains, is that it contains one of life’s most precious commodities, patience. Taking the long view teaches us to be patient, and I think we can all agree that patience is something we could have more of. Life is made of relationships, and being patient helps you with relationships. Would you rather have a spouse, friend, neighbor, teacher, boss, or running buddy that is patient, or one who isn’t?

The same applies to financial planning and investing, which are long term decisions.  Consider retirement, a key goal for most people. Many decisions we make today will affect our ability to retire comfortably, but we rarely think about it in making any of our daily decisions. We fail to take the long view.  As a result, many people put retirement planning off and undersave for it.

And just as in relationships, patience is crucial to investment success. Most investment mistakes happen when we fail to be patient. For example, research shows that overreaction to short term news causes investors to follow a pattern of buying high and selling low, a bad recipe for investing.  Taking the long view helps put performance into the right perspective. The market volatility of the last few weeks should have little impact for most investors with a 10, 20, or 30 year investment horizon. In fact, it may even benefit them.  

Values, Planning, and Coaching

Taking the long view in our daily lives can be hard, as so much of what we are exposed to pushes us to make rushed decisions.  Financial commentators often lead us to react to events we have very limited control over, and even ones that do not matter to our long term goals. So how can we redirect our focus? Most of us (me included) need two things. A plan based on our own values and priorities, and some level of coaching. 

To succeed, a financial plan has to start by clearly defining why money is important to you, a topic we will discuss often. You have to define your set of values and priorities. These form the WHY of your plan, the key to keep you focused on the long view.

Coaching is essential too. The goals that require planning are the most important in our lives: our kid’s education, our independence, our retirement, our legacy, and [your goal here]. We don’t just want to give it a shot, we want to give it our best shot, and coaching can help us do that. Coaching can help us monitor and celebrate progress, deal with setbacks, and make proper adjustments as life happens.

The best plan won’t help you if you can’t stick with it, and research in behavioral economics shows that key reasons for this are failure to consider personal motivations or values, and lack of coaching.

The benefits of this approach extend beyond investing. Start with your financial plan, and this ability will also help you in other parts of your life, including relationships, your career, and life experiences.

Check our website to learn more about how our investing and planning approach can help you achieve your life goals

Until next time.    

Massi De Santis is an Austin, TX fee-only financial planner.  DESMO Wealth Advisors, LLC provides objective financial planning and investment management to help clients organize, grow and protect their resources throughout their lives.  As a fee-only, fiduciary, and independent financial advisor, Massi De Santis is never paid a commission of any kind, and has a legal obligation to provide unbiased and trustworthy financial advice.