A home built on rock can withstand countless storms.
Most people, I think, would agree building a home on solid ground makes sense. Today, if a home doesn’t have a solid foundation, like rock, a builder will fortify it with cement, rebar, steel, or some other material to make sure it stood for generations.
It doesn’t make sense for a person to build a home on sand or some other porous material that will be washed away when the next storm arrives. Why would someone build a home that might be destroyed by rain or wind? They could be looking for short cuts or trying to cut costs by using cheaper and lower quality products. In their haste, they ignored all the warning signs which will eventually bring disastrous results.
Investors who build portfolios on feeble foundations look for quick rich solutions by by-passing traditional planning practices. They will chase the latest investment fad in hopes of short-term trading profits by purchasing bitcoin, dot com companies and pot stocks only to see their results go up in smoke.
If you’re a successful investor, you probably have a financial plan. Your plan is your foundation. It will give you guidance for your future. It will help you identify and prioritize those items most important to you and your family.
During a storm, your plan will give you peace, hope and security. It will be your fortress against making rash decision that will have long-term consequences on your financial goals. When the stock market is acting violently or performing poorly, you should refer to your plan often so you don’t get distracted during the dark days.
How can you fortify your financial foundation? Here are three suggestions.
1. Create a financial plan. I would recommend working with a Certified Financial Planner™ who can help you visualize and dollarize your goals. Planning for retirement? Paying for college? When should you apply for Social Security? Do you still need life insurance? These questions, and many more, can be answered through your plan.
2. Review your financial plan. After your plan is complete, an annual review is recommended. Are your stated goals still important to you and your family? Did you reach any of your goals? Do you have new ones? An annual review with your planner will make sure your plan is still on solid footing.
3. Invest according to your plan. Your asset allocation and investment selection should reflect the design and result of your financial plan. If your portfolio is aligned to your goals, you’re more likely to stay invested during good times and bad.
A solid foundation should be at the cornerstone of your investment plan. The more fortified your finances are, the better your results will be.
For I know the plans I have for you, declares the Lord, plans for welfare and not for evil, to give you a future and a hope. ~ Jeremiah 29:11
Bill Parrott is the President and CEO of Parrott Wealth Management firm located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process.
Note: Investments are not guaranteed and do involve risk. Your returns may differ than those posted in this blog.