Finance A timeless piece of advice that’s useful in all aspects of life – but particularly important when it comes to personal finance and investing. Instead of stressing out on the finer details of money management (and make no mistake, there are plenty of details to spend time on), most people will find their confidence grows when they take care of the “big picture” issues: broad portfolio allocation, having a long-term financial plan, building a legacy for the next generation, and so on. Having trouble deciding what’s “big” and what’s “small”? Fair enough – when you’re feeling anxious and stressed about money matters, it can sometimes be difficult to determine which is which. Try asking yourself these simple questions: Know your comfort zone Fact: every investor has a limit to the volatility and uncertainty which they can endure – after that, emotions take over and distort our financial decisions. For veteran investors and market watchers, the limit can be quite high: their portfolio could go down by 20% or more in a few weeks and they won’t lose any sleep at all. For newcomers, or those who aren’t as aware of stock market history, or those who don’t pay a lot of attention to market movements, a drop of even 5% in the value of their portfolios could make them anxious, worried and overwhelmed. Knowing exactly where your comfort zone is (and making an effort to stay within it) can be a source of tremendous confidence – in the same way that an ounce of prevention is worth a pound of cure. If you can recognize that an investment lies outside of your comfort zone before you make it, you can avoid a confidence-busting mistake or misstep before it actually happens. Most of us have at least an inkling about whether we’re a “conservative” or an “aggressive” investor, or something in between. But it can often take some time to really know the boundaries of your financial comfort zone. Sometimes, we have to learn the hard way, by overstepping those boundaries and realizing that a given investment causes us too much worry and anxiety only after we’ve committed money to it. Get into the habit of doing a “gut check” on your comfort zone from time to time – most investors find that it will shift over time. For example, when you’re younger, you might not think too much about stock market losses – you’ve got time to make up for them. Once you reach your golden years, and you’re living largely on the proceeds of your portfolio, you might feel the need to play it more safely. For other people, it works exactly the opposite: you start out on the conservative side because you lack knowledge and experience. As you become older, you gain more investing experience and you find yourself more comfortable taking on risk. Will I be worrying about this one year, five years, 10 years from now? If it’s not a long-term concern, it’s very likely that it’s “small stuff.” Does this affect my core financial goals or fundamental life values in any way? If not, it almost certainly belongs in the “small stuff” category. Are unrealistic expectations making me think that this issue is “bigger” than it really is? Worried about things that are not within your control? Hoping for outcomes that are improbable, if not impossible?That’s a big flashing neon sign that you’re worried about small stuff. Am I overthinking it? Often, the small stuff “disguises” itself as much more complicated and complex than it really is. Am I the best one to deal with it? Is there someone whom you can hire to take away this anxiety? Someone you can delegate this task to so that you don’t have to worry about it?That’s a great way to get rid of the small stuff so that you can stay focused on the big picture. Don’t get us wrong. If you’ve got the time and inclination to get into the minutiae of financial statements, market analysis and stock data points, by all means dive in –mastering the details can and often does make a positive impact on your portfolio returns. But let’s be honest: most of us have better things to do. If you’re like the vast majority of snowbirds, and have only a limited number of hours in the day (and limited space in your brain!) to devote to your portfolio, use the time wisely and keep the focus squarely on the stuff that matters most. If you can get the big stuff right, you’re likely to have taken care of 90% or more of the financial challenges that you will ever face. And that can be a tremendous confidence booster. Learn how to separate “big stuff” from “small stuff” (and try not to sweat the small stuff) 32 | www.snowbirds.org
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