Golf & Finance: Control
This past weekend I had the humbling experience to compete in the 2022 City Tour Championship at Sea Island, Georgia. My partner, Jared, and I competed against 59 other pairs of golfers who had also won their local qualifying tournaments across the country and received the invitation to play in this national championship. My nerves were running high and it was the first time in a long time I played in such a competitive field. Throughout the tournament, I made it a priority to only focus on the things that I can control. These included my shot process, club selection, and nutrition. Jared and I couldn’t control the weather, who we played with, and what we scored. However, we could always think things through and come up with a game plan given the various obstacles in front of us. At the end of the weekend, we finished a respectable 23rd out of 60 with an overall score of -6 for the weekend and an experience I will have for the rest of my life. If you ever have the opportunity to play the courses at Sea Island, I highly recommend it.
As we near the end of a tumultuous year in the market, this tournament reminded me that we can only truly control the things within our power. As investors, we cannot control the rise and fall of the market, nor inflation or rising interest rates. And we certainly do not have any power over what clickbait headlines end up appearing on our phone the first thing in the morning. We must remain focused on what is within our control and worry less about what we cannot control. Below are a few ways that you, as an investor, can stay on track to accomplish your goals and focus on the things that are within your power to avoid some common pitfalls investors make during uncertain times.
Reaffirm your Asset Allocation matches your risk tolerance and goals
Asset Allocation in its simplest terms is the ratio of stocks, bonds, and cash within a portfolio. There are multiple factors that determine an investor’s asset allocation, such as:
- Investment Horizon
- Risk Tolerance
- Age
At RPJ, we continuously check in with clients and re-confirm their goals for the money in their portfolio. Your optimal asset allocation will take into consideration the factors above and give you the best chance to achieve your goals. The good news is, your portfolio’s asset allocation is 100% within your power. You are always able to change your asset allocation so that it corresponds best with your investment goals.
Emotional Investing is Bad Investing
We are constantly being inundated with new information. Even this post has hopefully shown you something you haven’t seen before. Every day the media is updating us on current market conditions, inflation, rising interest rates, the supply chain, etc. We have to remember that the media’s goals are not necessarily the same as the reader’s goals. While it’s important to keep tabs on what is happening in the world around you, it is not within your control. What is in your control is how you respond to the information you consume. By getting emotional about current conditions you inevitably cloud your judgment and decision making. When it comes to your retirement, your nest-egg, and your goals, you must remain objective and not let emotions dictate your investing behavior.
In 2018, there was a study published in the Journal of Financial Planning that concluded investors who can overcome the tendency to panic (i.e. act emotionally) and embrace their risk capacity (i.e. have confidence in their portfolio’s asset allocation) will have more average wealth than those who do not remain objective. Please see the table below:
Practice patience, especially during volatile times
What will always be true about the market is that it will go up and it will go down. Historically, the declines of the market have always been temporary and the investors that stay the course are rewarded over the long term. Warren Buffet said it best, “The market is the most efficient mechanism anywhere in the world for transferring wealth from impatient people to patient people.”
Historically speaking, it is unequivocally true that the S&P 500 has always come back from a decline. How you respond to current market conditions is always within your control. Unless your underlying goals have changed, Warren Buffet (and myself) would suggest to be patient, let the market cycle do what it has always done and respond objectively. At RPJ, we frequently review the quality of the funds that are in our client accounts to ensure they give the clients the best opportunity to succeed in different market conditions. Admittedly, it is difficult not to overreact to the current market conditions, but it is necessary for long-term success.
This year has not been easy for investors. The S&P 500, as of December 13, 2022, is down -16.26% year to date. Inflation has risen from 1.17% in November 2020 to 7.11% in November 2022. And the Federal Funds Rate increased from 0.08% in January 2022 to 3.83% in December of 2022. With all this said, we as investors need to focus on what is within our control, especially in the current climate. We have control over the asset allocation of our portfolio. We control whether or not we let emotions influence our decision making. And we can practice being patient especially in turbulent times. You’re going to be less worried and your investment performance will be better if you focus on what is within your power. If you have questions, or would like to talk about this topic more, please let us know! We are always here to help.
Source: Inflation
Source: Fed Funds Rate