Posted on December 8, 2017 in

Focus On Your Plan, Not Performance

2017 has been a good year for the markets for many participants. Both stocks and bonds have done well even with the prospect of higher interest rates and potential turmoil. All three major U.S. equity indexes, the Dow, the S&P 500, and the NASDAQ posted solid gains through the beginning of December. International markets are also positive for the year.

All this excitement and growth makes it easy to lose sight of your financial goals, but even with this good news, investors should be wary. According to Michael Scott, a Financial Advisor at CPS, “Financial plans provide pathways to achieve your goals. A good plan details your goals and the steps to reach them. Unfortunately, when strong years appear, it’s easy to abandon the plan or take a shortcut. Shortcuts can often destroy years of hard work.”  Scott shares some common questions that can lead to a bad financial decision.

“Should I buy more stocks? The market keeps going up.” Probably not. Your financial plan was created with a specific asset allocation for you. Your portfolio should grow in a strong market, but it also needs to provide support if the markets falter. Remember, stocks can go down as easily as they go up. Chasing higher returns can destroy a financial plan. A better question is, “How has this year helped my financial plan?” or “Do we need to do any rebalancing to protect the gains?”

“My portfolio is up 15%, but my neighbor is up 20%, am I missing out?” Maybe, maybe not. It is important to be aware of the number, but the number itself isn’t everything. Performance can be affected by many factors, but it’s more important to focus on the plan. Ask your advisor, “How does this year’s performance affect my plan?” Performance should be gauged relative to your goals, not your neighbor’s portfolio.

“2017 has been a great year. Do you think 2018 will be as good?”  Reality is that yearly performance changes like the economy and that’s often hard to predict. In 2018, the markets will most likely go up and down. The best course of action is to stick to your plan. You created it for good years and bad years. The easiest way to mess up a plan is to change it when its unwarranted.

These are common questions after having a good year. Your advisor should be able to simply answer them, but also relate them to your individual financial plan. A good advisor doesn’t tell you what you want to hear, they tell you what you need to hear. If you don’t have a plan, consider speaking with an advisor about your unique situation. Finding a trusted financial partner can help you plan for the future, but also protect what you’ve gained.