This month we are going to talk about investment performance in relation to a financial plan. If you have been following along, we are a big proponent of planning, and over the last several months, we have advocated an approach to planning for the long term. We believe that long-term planning allows you to not react to all the news and noise we face daily. We have also suggested that an advisor will help you calibrate your plan as you go so that you can gradually adjust for multiple factors, not just the current investment climate.
Think of the past three years: record high inflation, a global pandemic, and a war in Europe, to name a few things that caused fear and uncertainty. Would you believe me if I told you that even with all of the volatility experienced from the beginning of 2020 until the end of 2022, when you compare the S&P 500 Index (one index that represents the success of the top 500 companies in the world) from 2020 to 2022 to the previous 94-year history of the market (1926 to 2019), the numbers would suggest that the overall performance was typical?
The S&P over the past three years provides an excellent illustration of focusing on short-term investment performance versus having a long-term plan. Without a plan within those past three years, it may have been easy to make drastic changes to your investment portfolio. These drastic changes might have included trading to become more conservative or moving away from equities altogether. Either way, this strategy could have easily caused someone to miss out on the days when the market did perform and ultimately could cause you to miss the beginning of a market rebound.
What does this mean? Volatility in the market is healthy, and it is through volatility that opportunity is created. And despite volatility and uncertainty, if performance in seemingly one of the most challenging markets over the past three years is normal, then perhaps there is something more valuable than chasing investment returns. We argue that prioritizing planning and execution is usually more indicative of success than what stocks you pick, and over time, with this long-term approach, you will likely meet your goals. Reach out today to see what a plan can do for you.
