Chuck Swindoll once said, “The longer I live the more I appreciate balance, and yet the more I see of extremes.” Most of us do appreciate balance. And most of us do see the extremes around us because they typically reveal something unexpected, or perhaps even dangerous. This naturally grabs our attention, at least for the moment.
As an investor, you have likely experienced times when the market seems to be overreacting to something. During these times it’s often best to step back and turn down the volume on the TV set. Remember, if you developed an investment strategy and the appropriate level of risk tolerance in your plan, then you’ve already prepared for extreme times. In other words, you have “balanced” your portfolio based on risk, goals and time horizon. This balancing act can help you get through these times with a degree of confidence that comes from being prepared.
And don’t forget, just like in life, we need to “rebalance” our investments from time to time. When your situation changes, or as you get older, you will likely change your goals and adjust your risk tolerance accordingly. Don’t fail to consider key changes in life and in turn adjust your investment portfolio. A periodic rebalancing can help smooth out the bumps in the road and help to keep you on track.
The only way to avoid mistakes is to avoid doing something. And even in this scenario, one can argue there is a greater mistake by incurring opportunity cost – meaning there is a cost to not doing something. I believe this is why my Dad always encouraged me to learn from my mistakes, to keep trying, and to do my best to do better “the next time around.”
Likewise, when investing, the only certain way to avoid making a mistake (to avoid a loss) is not to invest, and that could be the worst mistake of all. Many have told me over the course of the last year they wished they hadn’t stopped investing. Some did it out of fear, and many just out of uncertainty. When we invest and things don’t go as planned, it’s important to learn from this – about our tolerance for risk and more about our investment profile. But it doesn’t mean we should stop investing. And when losses occur, if we turn this into a learning experience it can help protect us from taking on too much risk in the future, or from making the same mistake twice.
Don’t become discouraged. Instead, invest early and often to help accumulate savings for the goals you have… whether a home, paying for an education, or retirement. And don’t stop! Over time, make adjustments as needed by working closely with your advisor and by learning from your mistakes (and also the mistakes you see others make).