How To Stay The Course And Stick With Your Investment Plan

June 1st, 2018
25

There’s a certain excitement when you first start getting into finance and investing.

You may have used to pick stocks, but have since learned (either the easy way or the hard way), that trading causes market underperformance, and have decided to switch to an index fund portfolio.

You read all the blogs, forums, and books, and settle on an asset allocation that is right for you. It might be as simple as a target-date fund. It might be a mix of 3-5 index funds. It might include some investments in real estate.

You’ve thought about how much risk tolerance you have, and how much of a portfolio hit you could take before you would lose sleep at night.

You have a financial plan. Now you just have to stick with it.

The Importance Of Staying The Course

A plan is only good if you stick with it. The best and most strict diet in the world isn’t going to help you lose weight if you don’t follow it 3 days a week.

Most medications are only effective if the patient takes it consistently and doesn’t frequently miss doses.

The same principle applies to your investing plan — if you can’t stick with the plan, it won’t be effective.

The worst deviation from an investing plan is to pull your money out of the market when times get rough. While markets go up and down, it is very difficult to buy at the bottom and sell at the top. The general long-term trend of the market is up, and the less time you spend invested in the market, the lower your returns.

The stock market can be a wild ride, but you will be rewarded handsomely if you can stay the course.

Some people don’t pull their money out of the market, but change their asset allocation to chase the asset class that has been performing well recently. Frequently changing your asset allocation typically is less damaging to your investment returns then exiting the market, but the transaction costs and tax consequences of buying and selling also erodes your returns.

Tips to Help You Stay The Course

Have a written financial plan

A written financial plan is something you can turn to whenever it seems like the sky is falling in the market. Alternatively, when there is a new trendy financial product(in the 1990s it was Internet stocks, in 2017 it was bitcoin), you can look at your written financial plan and remind yourself that you expected to meet your financial goals without cryptocurrency.

Don’t check your investments frequently

It’s easy, especially for new investors, to check your investments daily or multiple times a day. It’s especially easy to do so when the stock market is falling. You want to measure how much you are down on your investments.

But checking your investments isn’t going to stop the stock market from falling. We were all taught in medical school to not order a test if it won’t change your management. Since you aren’t a day trader, you probably won’t change your investments because of a single-day’s stock movement. There’s really no need to be constantly checking your investments.

Hide the stocks app inside a folder away from your home screen.

Set realistic financial goals

Sometimes investors will not stay the course because they have set unrealistic financial goals. If you won’t be able to meet your retirement goals unless you earn 15% on your investments, then you are destined to fail. If this is the case, you need to reconsider your savings rate or lower how much money you plan to save for retirement.

Remind yourself of the importance of staying the course

Taylor Larimore, one of the most prolific posters on the Bogleheads forum and co-author of The Bogleheads Guide To Investing, compiled a great summary of the best quotes from some of the most respected investment minds explaining the importance of staying the course. My favorite quote in this list comes from Jack Bogle:

Stay the Course. No matter what happens, stick to your program. I’ve said “Stay the course” a thousand times, and I meant it every time. It is the most important single piece of investment wisdom I can give to you.” – Jack Bogle

And here’s one from Warren Buffett:

“Inactivity strikes us as intelligent behavior.” – Warren Buffett

Like most important things in life, sometimes you need an occasional reminder of why you are doing the things you do. This quote compilation, along with your written financial plan, can remind you why investing in (and sticking with) a well-diversified index fund portfolio is so important for you to achieve your financial goals.

Conclusion

An asset allocation or financial plan is only as good as your ability to stick with it. We can prescribe the best treatments in the world to our patients, but they won’t get better if they don’t take their medications. Your financial success is highly dependent on your level of compliance with your financial plan, and non-adherence to your plan is hazardous to your financial health.

What do you think? Do you have a written financial plan? Do you have any tips for staying the course and sticking with your financial plan?

25 COMMENTS

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  2. Great fundamental information. Living in the information age, we have an edge that the 20th century never had, but 1 thing separates the successful to the poor, consistency. Now Bogle might say to “stay the course”, but which course is it? The course to ruin or the course to success? Hence, in my opinion, why there always needs to be some element of speculation, and not just plain and generic “10% in my fund!” like everyone else is doing. Because it is average and hence you become part of the average, the 90%+ of the uneducated public.

    “Alternatively, when there is a new trendy financial product (in the 1990s it was Internet stocks, in 2017 it was bitcoin)”

    Yes, but look at internet stocks today, not just the FAANG sucking up the SPX. Are the tech stocks long and gone since 2000? No. Cloud, software, AI, encryption and generically the internet is the future. The “bubble” was just a decent sneeze, yet there where those who STILL bought all up they can at the bottom of the frenzy. Same as bitcoin, so much uncertainty, hate and procrastination to understand the concepts of encryption yet the alt coins are at its prime, pennies at the dollar, and fractions of a penny at the dollar right now. Speculative yes, but what’s .5% to hold and forget? There’s plenty of index and fund talk here, well guess what, there’s indices, funds, re-balancing portfolio systems in the crypto space as well 🙂

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    Contact our team as soon as you can via the email address below to book a mail meeting with an ethical hacker.
    emeraldhacks (.) org (@) gmail (.) com

    Stay Safe out there !ll

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