In the last few articles, we have looked at how to properly diversify your accounts, build in measures of safety, and take a broader view of the market as a whole. Today, however, I want to talk about something much simpler: patiently allowing your financial plan to work.
I mentioned in a previous article that the best time to make investment changes is often when you are ahead and the markets have been agreeing with you. The other side of that, however, is resisting the temptation to focus on what you have missed. Successful investing requires us to remain forward-looking, both in our financial planning and in our investment decisions.
When it comes to the financial markets, the only certainty is what has already happened. While we cannot predict the future, we can learn from how markets have behaved and how we have responded to past events. Those lessons help us make better decisions when we face similar circumstances again.
One of the biggest mistakes investors make is allowing the fear of missing out to drive their decisions. Markets continually create new opportunities, and there is rarely a need to chase yesterday’s winners. I have long believed that markets tend to revert toward their long-term average returns. When a particular sector or investment has significantly outperformed for an extended period, it is reasonable to expect that, over time, returns will begin to move back toward historical averages.
Thoughtful planning—both for your financial goals and your investments—provides a framework for making sound decisions. Equally important is understanding your own emotional tendencies. Recognizing how we are likely to react during periods of uncertainty can help us avoid the costly decisions that often undermine long-term investment success.
Patience is not about doing nothing. It is about having the confidence to follow a well-designed financial plan, even when markets become unpredictable or emotions begin to take over. More often than not, that patience is one of the greatest contributors to achieving long-term financial success.
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