There are at least 10 things that matter more to your financial health than strictly investment returns. Clients of our practice well know this, but for others this is a good concept to review. The best way to financially plan is to pay attention to all aspects of long-term financial health, including investments. Focusing strictly on investment returns puts you in a short-term thinking mode, void of the big picture of your financial life and without a Plan B to balance and regroup if an investment portfolio suffers in an economic downturn or geopolitical crisis. It is important that your investment strategy fits your personal financial life cycle. This is why strict money managers don’t always recognize the full picture of a client’s overall financial health (or lack of) and their clients can end up at the least, disappointed.
Below are 10 OTHER things besides investment returns that really matter to your financial health:
1. How much you earn and how long you work (knowing when to improve skills & earning power, your work ethic, career decisions, and knowing your strengths and weaknesses).
2. Wise shopping and spending (includes living within your means & philanthropy).
3. How much you save annually in permanent savings and your emergency or liquidity level (understanding the time value of money).
4. Your tax burden (probably increasingly important in the future).
5. The diversity of your investment portfolio across asset classes according to your personal financial life cycle.
6. The stability of your relationships.
7. Making the most of your investment in your home.
8. Your physical and mental health.
9. Bad habits, past financial mistakes, and working through them. (i.e. debt, poor spending habits, investment get rich quick schemes, lack of direction or knowledge, greed, fear, impatience, etc.).
10. Understanding the path towards your short, mid and long-term goals, expectations, and understanding where you can be flexible.
AND: The rate of return on your investments.
We are working through client year-end reviews where we take time to discuss open issues, goals, changes in direction, investment strategy and short and long-term planning. This sets the stage for the next year and forward – keeping us partnered with our clients, on track and in sync with their present situation and life plan. Since life is fluid, especially in the past few years, it’s important to ground ourselves wherever possible.
If you evaluate the above for your own life, you are well ahead of most Americans and better prepared to adjust to unknowns and improve the quality of your life now and in the future. Tools are available over the internet to evaluate some of the above.
Although we can’t know the future and shouldn’t spend a lot of time guessing at it, we can and should take steps to weather “rainy” days, stepping purposefully forward. It’s good to remember that what matters to our present and future is more than simply “how are my investments doing?”