We (investors) love watching our accounts expand.  It’s nice to see forward progress in values so you get closer to what you want.  This calendar year so far has been “less awesome” from an investment perspective.  The roaring returns of the past several years, decade for that matter, can’t last forever.  Present day company values continue to contract and prices for the things we like to purchase remain high.  What’s an investor to do (or not) in times like these?

First, recognize that each of us holds a unique viewpoint on cash, investments, and debt.  It’s commonplace for our spouses to have different backgrounds and opinions on money.  We inherited more than just our genes from our parents.  Understanding financial decisions based on your biases, upbringing, and beliefs is a good place to start.  Don’t judge yourself too harshly on past decisions (or over congratulate yourself).  Rather, recognize your past is the key to making better choices today.  All things, good and bad compound overtime and may provide options in the future.  How do you make the most of today?

All investors should have an awareness, in rough numbers, on what they are comfortable with in cash reserves, debt levels, and general spending.  There are no correct answers here, it’s all personal.  You may discover you’d feel a lot better with boosted cash reserves.  You may choose to paydown debts and carry a smaller mortgage for peace of mind.  It’s also possible you may be sitting on too much cash and know at some point; you’ll need to invest it to reach your goals.  The answers to a higher awareness lie in gaining clarity on your financial priorities.

Clarity arrives by giving each of your accounts a job description, cash included.  For example, your 401(k) may be for retirement income; your stock purchase plan may be more discretionary and short term in nature.  Your savings account may provide dollars for home renovations or the next vacation.  Give each of your accounts a purpose and timeline.  This allows investors to consider real-life scenarios with their resources that may stretch decades.  When you accept this approach, you may loosen your grip on attempting to influence short term results.

Going a step further and integrating your accounts and their purpose into a financial plan allows an investor to keep the faith in tough times like today.  Our natural reaction maybe to change investments or move to cash.  This may feel good near term but is often detrimental to long term financial security. Financial security is supported by a financial plan that may be updated annually via a repeatable process.  When you think in decades as opposed to trading sessions, your perspective evolves.  This is the basis of becoming an investor as opposed to playing the role of a trader chasing more.

The reality is by continuing to invest and purchasing companies at lower prices today, their values may expand one day.  When, who knows, and it really doesn’t matter.  What’s important is adopting reoccurring habits by investing and saving to cash reserves regardless of the current environment.  Instead of betting big on a technology, or small group of companies, consider owning the entire market in efficient and low-cost investments.  This allows whatever dollars you have, a little or a lot, to go the distance and participate in all the market’s zigs and zags.  Before investing, it’s always a good idea to understand your tolerance for volatility in price in addition to risk.  These two themes are often confused for one another.  Maintaining appropriate levels of cash reserves allow investors to sit still when it matters (now).

Remain patient and reflect on your plan.  It’s ok to update your priorities and perhaps change your thinking overtime.  Successful investors stay the course and remain flexible by considering adjustments to their goals and timelines.  Having patience and a process to follow allows investors to remain investors.

Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Flowerstone Financial are not affiliated.

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