Slow Down, Simplify and Stick to Your Strategy

By Kate Warne

Woman and man at oceanfront

With so much information instantly available in today’s constantly changing world, do you sometimes feel overwhelmed when making important financial decisions? Are you concerned about the uncertainty and impact of the November elections? There’s so much to learn, and often it’s hard to make sense of it all. Here are three solutions and some important actions to take today that can help you toward your long-term financial goals.

  1. Slow down. It’s important to make some decisions quickly – in fact, our brains are designed for instant responses to likes, dislikes and threats. But don’t let those quick reactions be the only consideration when you make decisions with long-term consequences. You may need to slow down. We think a time-tested process helps improve investment decisions and results over time. Instead of adding unfamiliar investments, subscribing to market-timing newsletters or making frequent changes, think about prioritizing your decisions so you can focus on what matters more.

    Over time, the mix of stocks and bonds in your portfolio has the biggest impact on your investment results.* And the right mix for you depends on your comfort with risk combined with your financial goals and time frame. The resulting investment portfolio helps you stay prepared for risks, including market volatility and longevity, among others. It also considers the investment returns you need over time to achieve your goals. Remembering that process can help you stay invested rather than distracted when markets move sharply.

  2. Keep it simple. Have you made your financial life more complicated than it needs to be? Consider consolidating your accounts so that you can see your overall financial situation more clearly. That can simplify the calculations and decisions if you’re taking required withdrawals or reviewing your beneficiaries. It also can help identify gaps in your portfolio.

    Simplifying probably doesn’t mean fewer investments – in fact, with more volatile markets, it’s important to review your portfolio’s diversification to ensure it includes asset classes that move differently from each other. That’s why we recommend growth investments such as small-cap and mid-cap stocks as well as large-cap domestic stocks and real estate investments. We think international developed-market stock investments look particularly attractive today, since they have lower valuations and higher expected growth rates.

  3. Stick to your strategy. The S&P 500 is near a record high, interest rates are likely to remain low as the Federal Reserve cautiously considers its next move, and uncertainty remains high, especially due to the presidential election. But don’t change your approach or stop investing. Your strategy is designed to help you through times like these and keep you on track toward your long-term financial goals.

    For example, this chart shows the five-year annualized returns for a portfolio with 65% invested in stocks (both domestic and international) and 35% in fixed income. Although returns vary over time, this portfolio’s smallest five-year return was 1.6% per year, helped by the combination of diversification with a long-term approach.


Source: Morningstar Direct; 1/1/1976 — 12/31/2015. U.S. large-cap stocks represented by the S&P 500 Total Return Index; international stocks represented by the MSCI EAFE NR Index; bonds represented by the Barclays U.S. Aggregate Bond Index. The hypothetical portfolio is for illustrative purposes only. Results may vary for an individual portfolio with similar holdings. Indexes are unmanaged and are not available for direct investment. Past performance is not a guarantee of future results. Investing involves risk. The value of your investments will fluctuate, and you may lose principal.

What's your next step?

Are you avoiding important decisions about your future? You’re certainly not alone, but you can do better, and help is available. Work with your financial advisor to address today’s greater uncertainty by considering what’s most important to you, using a time-tested process, keeping it simple and sticking to your strategy once it’s in place. But like all advice, it doesn’t help unless you act.

Important information:

*Source: "Determinants of Portfolio Performance II: An Update," Gary P. Brinson, Brian D. Singer and Gilbert L. Beebower, Financial Analysts Journal, 1991. Past performance is not a guarantee of future results. Diversification does not guarantee a profit or protect against loss.

Investing in equities involves risks. The value of your shares will fluctuate, and you may lose principal. In addition, small-cap and mid-cap stocks tend to be more volatile than large company stocks. Special risks are inherent to international investing, including those related to currency fluctuations and foreign political and economic events.

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