How are meetings with your Financial Advisor?
Are they full of mystery, excitement, and planning drastic changes to your holdings and overall strategy?
Let’s hope not.
Frequent changes in a retirement account are a sign of watching the scoreboard and accepting rumors as facts prematurely. The scoreboard is your total account balance, and while all investors and Financial Advisors aim to increase this total balance over time, tracking it constantly is a recipe for anxiety. Only considering your total account balance and reacting impulsively can also move you further away from your end goals.
Question: What do you need your investment account to do for you?
Common goals include:
- Creating reliable income streams
- Paying for your children’s college tuition
- Saving for a down payment on a house
In my experience, most retirement accounts are established to provide reliable retirement income streams. For these investors, monthly cash flow, not the overall account balance, is the more important number to track.
For example, Apple (AAPL) has a current market cap of around 2.98 trillion. The moment shares of AAPL move up or down $1, their market cap changes by approximately $15B in one direction or the other. Does this movement mean something tangible has happened to the company to make it worth $15B more or less than an hour before the price moved? Probably not. The same is true with your investment account. A month with a lower overall account balance doesn’t mean that a change is needed.
You can’t predict what your account balance will be every month, but you can predict your cash flow and know what to expect in income from the assets in your account. Focusing on your cash flow, not your account balance, is how you can eliminate external noise and focus on what’s most important.
Just look at what’s happened over the past year. While some analysts predicted as many as 5-7 rate cuts in 2024, we are almost halfway through the year without any announcements from the Fed on upcoming cuts. Remember the recession everyone was fearing in 2023? It never came, and the market climbed at the end of the year. Making big moves based on these two rumors led investors to miss out on market gains.
This year will be full of rumors and predictions, from the upcoming election to rate cuts to earnings projects. Keep your end goals top of mind and tune out external noise to avoid making impulsive decisions that aren’t in line with what you want to accomplish.
As always, if you have any questions about your retirement account, feel free to contact me at ryan.oconnell@bloomingtreewm.com.