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Why an Investment Process is Key to a Successful, Stress-Free Retirement

It’s natural to feel anxious about investing. We all want to make the best decisions when it comes to planning for retirement—decisions that will help our nest egg grow bigger and faster.

While the advice to stay the course and stick with your allocation is sound, it’s easier said than done. From pundits who claim they can predict market moves to headlines and current events, we’re often pulled in many directions when it comes to investing. 

As fiduciary financial advisors, our advice is—don’t be swayed by them. Not only does that cause anxiety, but it can cause bad decisions that hurt, rather than help your financial success. This post will discuss why it’s important to have an investment process grounded in science; a philosophy that you’re comfortable with in both good and bad times.

Understanding the Investment Process

An intelligent investment process starts with a set of guiding principles. These principles will serve as a framework for making choices when it comes to your personal retirement plan. Think of the guiding principles as your roadmap; a course that leads you to your end goal, with a clear path you can follow to get there, even in periods of underperformance or self-doubt. 

At Wealth Legacy Institute, the principles that form our framework are: 

Invest for the Long-Term

A successful retirement investment strategy must be a long-term one. While sudden downturns can be scary, market volatility is more common than you might think. In the nearly 100 years of data, the US stock market has returned 10% per year on average, though it has rarely returned that in any individual year.  A long-term investment plan takes this into account so you can sit tight and let the markets recover over time.  

Balance Risk 

Each of the most common investment allocations (stocks, bonds, and cash) come with their own unique risk profiles. While greater risk can bring greater returns, too much risk is careless and potentially damaging to your retirement investment portfolio. 

A professional financial advisor, such as a fee-only fiduciary, can help you develop a plan that balances risk and return in a way that fits your goals, attitudes, values and preferences.

Utilize the Six Factors of Return

Capital market research over the last 40 years has identified the risks that are worth taking and the risks that are not. These time-tested principles help set up realistic goals that direct your mix of investments, shield you from tax mistakes, and keep you from letting behavior and feelings get in the way of intelligent decisions.

The goal of the factor-based approach is to emphasize the six factors of return which have led to higher expected returns over long periods of time, not by predicting which stocks, bonds, or markets are going to outperform in the future. 

Diversify Globally

When you hear about “diversifying your portfolio” you might think it’s all about choosing a mix of stocks and mutual funds - all U.S. based. This mix is important, but it’s not the whole picture. Global markets have great potential and offer added balance to your retirement investment portfolio. 

Consider that non-US stocks account for 48% of world market capitalization and include thousands of companies in developing and emerging markets as well as major economies. To discount them means you’re missing out on a huge percentage of equities.

Why You Need an Investment Process

Times like right now are the perfect example of why you need a process. While the coronavirus crisis has created extreme market volatility and uncertainty, smart investors will resist the urge to sell everything off in a panic.

Over the years, the financial advisors at Wealth Legacy Institute have learned that you can’t control markets, you can’t control how the public reacts to market fluctuations, and you certainly can’t control what the financial media broadcasts about markets.

That’s why you need an investment process to keep you grounded. The primary benefit of a disciplined and documented investment process is that you’ll be able to achieve your financial goals, without stress.

How Can You Change Your Own Behavior?

If you’re living in fear of the next downturn, consider shifting your thinking, not your investments. Focus on the things that you can control, such as:

Applying the Investment Process to Your Retirement Goals

While it’s important to understand the investment process and principles, we want you to know that you don’t have to do this all on your own. Our wealth management services are designed to help preserve and pursue your wealth by employing prudent investment strategies to help you target financial success. 

While our investment process framework remains the same, how we apply it depends on you. Our goal as financial advisors is to help you create a retirement investment plan that aligns with your financial goals and your ideal retirement lifestyle. Based on your goals and objectives, we set the strategy, and then help you follow through.

When you have a plan in place that’s built to last, you’ll be less prone to reacting every time the market takes a turn. Instead, you can focus on what really matters—enjoying your life.

2020 Denver Retirement Guide

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