June 13, 2024

A Mindset for Financial Success

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The news media is constantly reminding you of terrible events occurring locally and around the world each day that you cannot control. In addition, financial gurus are everywhere predicting the direction of the economy and the markets. Listening and watching all of this fills your head with negative thoughts and as a result, you may become frozen and afraid of saving and investing for your future. Many people start having thoughts similar to this, “If there is a war in XYZ country (replace “XYZ” with the latest trouble spot in the world) or a recession, my portfolio is going to go down so I better get out of the markets now before it happens, or I better wait to invest more money until after everything is okay again”. Of course, nothing will ever be okay again, because each day the latest news brings a new worry about what could go wrong. Eventually you develop a short-term view about everything, including your investments, and this virtually guarantees you will fail at your financial goals over the long run.

Change Your Mindset

If you were able to change your mindset and focus on what you can consistently control yourself, develop a plan around those things, and stick to the plan over the long term, you would sleep better at night and have a better chance of reaching your financial goals.

To put a long-term perspective on things, let us look at what the S&P 500 has done over my lifetime. I was born in 1961 and in that year, the S&P 500 index started at 59.72. Move forward in time 58 years, and the S&P 500 index started 2019 at 2607.39, about 44 times what it was at the start of 1961[1]. During the time I have been alive many terrible events have occurred in the United States and around the world, including wars, assassinations, stock market crashes, and numerous economic recessions, yet the S&P 500 is about 44 times higher today from where it was in 1961. I do not mean to diminish the negative effects these events have had on people all over the world, but my point is the United States and other countries around the world find a way to get past tragedies and poor economic times, and continue to thrive, grow, and prosper. History has repeatedly proven this.

Focus On What You Can Control

Does this discussion cause you to take pause, and consider that perhaps you should be focusing on the internal things that you can control in regards to reaching your financial goals, and ignore the external things you have no control over? To do this you need to have a plan that aligns with your goals and financial situation and focuses on things within your control. You also need to stick to the plan over the long term. With a plan, you have a better chance of reaching your financial goals because you have a roadmap to help keep you on track. Keep in mind you do not have to execute perfectly to get there, and you only have to get into the ballpark, you do not have to get a seat behind home plate in the first row to be successful at reaching your financial goals.

Identifying What You Can Control

In this series of articles, I am going to introduce you to the things you can control in your investment plan that I believe have the biggest impact on whether you will reach your financial goals or not. I named these things the Five-by-Five Formula for Financial Success because there are five technical things to master around building and maintaining your investment portfolio and five behavioral things (arguably the most important of all) you must master. There are not any new products or strategies in the Five-by-Five Formula for Financial Success, and there will not be any guesses made as to the direction of the markets. In fact, nothing in the formula is new; it is simply capturing the things that experience, research, and historical data have proven work over the long term.

I learned these things through my training and work as a CERTIFIED FINANCIAL PLANNER™ professional, through over 25 years of my own personal experiences in planning and investing for the future, and through my own lifelong learning about investing and personal finance starting at age 24. I have also been positively influenced over the years by the writings of experts and pioneers in financial planning and investing including Jack Bogle, Rick Ferri, Nick Murray, Bob Veres, and Bert Whitehead among others. All of these people have contributed to shaping my views and approach to investing and financial planning.

Please see 5 Behavioral Principles to Master for Financial Success for the next article in the series.                            

[1] Historical prices are from the website: http://www.multpl.com/s-p-500-historical-prices/table/by-year

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