Rule #6: Have Realistic Expectations

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Rules don’t have to be hard to follow. At Edward Jones, our “Rules of the Road” are meant to help you get to where you want to be when it comes to your financial goals. Our Rule No. 6 may seem obvious, but it’s a good reminder no matter how experienced of an investor you may be.

When it comes to investment performance, what do you expect? This is an important question because your expectations can have a big effect on your behavior and your ability to reach your goals.

To set the right expectations, you first need to determine the return you are trying to achieve – which should be the return you need to reach your goals. While you can compare your return to a market index such as the S&P 500, an index is not built with your goals or risk tolerance in mind. Your return expectations should be based on your asset allocation (your mix between stocks and bonds), the market environment and your investment time frame.

Achieving your expectations

After you set your expectations, the next step is to work to achieve them:

  • Don’t count on averages. While your financial advisor focuses on the long-term average return when developing your strategy, the markets rarely have an “average” year. Some years are up, some are down, and short-term declines are a normal part of investing.
  • Don’t chase performance. It can be tempting to chase performance. However, this behavior can lead to buying what has already risen in value and selling investments that have fallen in value – essentially buying high and selling low.

Your financial advisor can help you review your performance in the context of your long-term goals and Edward Jones’ expectations for future performance. More important, you’ll review how that performance affects your progress toward your financial goals, and if any changes need to be made to help keep you on track.

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