“Government Set to Raise Interest Rates”
“Greece Ready to Default”
“Gold Primed to Make Mid-Year Rally”
Headlines are written to catch your attention, and the bolder the better. But are we really supposed to figure out how all this affects our portfolios?
The next time you read a headline that might relate to your portfolio, turn away and tell yourself, “It’s all about the checkbook.”
What the market does today and next year is irrelevant to your longer-term financial goals. The financial decisions you make in your everyday life are what matter most.
Here are a few concepts that will go a long way toward reducing your financial anxieties today and building a portfolio for tomorrow.
Make your saving and investing automatic
Trying to manipulate a monthly household budget so that there are some dollars left over to save and invest at the end of the month is an impossible task, at least for me.
But I am not concerned when I spend my checkbook down to zero at the end of the month, because I have taken care of my saving and investing automatically at the beginning of the month. This gives me the freedom to figure out how I am going to spend the rest of my paycheck without having to worry about whether there is money left over to invest in my portfolio. The nice thing about saving and investing automatically is that almost all financial institutions, including both retirement and taxable accounts, now make this transaction seamless.
Saving and investing never concerns me. It is all about my checkbook.
Oh, and the next time you are tempted to figure out Greece, gold, and the government, take out that checkbook and figure out a way to save an extra $100 a month instead.
Review your portfolio once a year
Not once a week, nor every hour as Wall Street suggests you do on your smartwatch with its latest app. Instead, take a peek once a year.
When the stock market and your portfolio are going through a six-year bull market, monitoring your portfolio every day can be fun and exciting. Watching a portfolio languish — perhaps day after day during a bear market — will become an agonizing experience that tempts you to do the wrong thing at the wrong time instead of leaving well enough alone.
The stock market and your daily portfolio value should be the furthest things from your mind as you are getting on with your life and making sure that your passions align with your actions and financial resources. As an investor, your goal isn’t to try to deftly navigate around the next bear market (and there will be several more in your lifetime); it is to capture all of the market’s return over a lifetime of investing.
Summarize your yearly expenses
At the end of the year, can you generate a ballpark idea of how you have spent your money? This exercise creates clarity on whether your spending is aligned with those things in life that offer you joy and fulfillment. Remember, “It’s all about the checkbook.”
On top of that, reviewing your expenses is a good habit to initiate because it gives you an idea of your personal inflation rate, a number that is critical to
the sustainability of your portfolio in retirement.
These are all simple steps, but therein lies the sophistication of successful financial management.