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It’s hard to avoid the endless commentary about the state of the economy. Headlines stoke fear, often leaving investors feeling anxious and uncertain. Investing based on fear, however, can lead to costly mistakes. Here’s how to rise above the noise and make financial decisions with clarity and purpose.
The Stock Market Isn’t the Economy
One of the first things to remember is that the stock market and the economy are not the same. While economic data may suggest challenges, the stock market often behaves independently in the short term. More importantly, history has shown that the market trends upward over time. That’s why staying focused on long-term goals — rather than reacting emotionally to short-term fluctuations — is key to financial success.
Be mindful of those who peddle fear or complacency. Whether it’s dramatic predictions about taxes, estate planning, or stock market crashes, these tactics are designed to provoke emotional reactions. Instead of succumbing to fear, stay focused on what is relevant to your financial goals.
Recognizing Emotional Reactions Around Money
Our relationship with money begins long before we consciously think about it. Many of us carry emotions, often negative, related to finances that can cloud our judgment. Recognizing these emotions is the first step to moving forward with intention.
Financial wellness extends beyond your investment portfolio. It’s about understanding your overall financial picture, including income, expenses, and long-term goals. By approaching money with awareness, you can avoid knee-jerk reactions that lead to poor decisions, such as selling investments in a panic or going all-in during a downturn.
Building a Thoughtful Investment Strategy
Behavior and intention are the foundations of a successful investment strategy. Before making decisions, it’s important to assess your overall financial plan.
Key considerations include:
Risk tolerance - Your objective ability to handle market volatility.
Risk capacity - Your subjective comfort level with risk.
Timeline - When you’ll need to access your funds and how long they need to last.
Invest Your Values - Whether your money is aligned with your values.
By considering these factors, you can make informed decisions that align with your values and goals. For example, your timeline may be when a child will be starting college, when a loved one may start needing care, or it may be retirement funds that need to last your life expectancy.
Taking these aspects into account while diversifying investments into sectors that reflect your personal values — such as Environmental, Social, and Governance (ESG) funds — can help you feel more confident about the sustainability and impact of your financial decisions.
Partnering with a Fiduciary for Accountability
It’s easy to feel overwhelmed by the emotions and politics surrounding money. That’s where a fiduciary advisor can help. Fiduciaries are legally obligated to act in your best interest, offering objective guidance to help you separate fact from fiction. Whether it’s navigating market downturns, adjusting your investment mix, or addressing concerns about shifting policies, an accountability partner provides clarity and peace of mind.
Creating Your Financial Roadmap
The first step to achieving financial wellness is understanding where you are today. Map out your income and expenses, categorizing them as fixed, flexible, or non-monthly. Once you’ve established your starting point, sketch a vision for your future.
Remember, this roadmap isn’t set in stone. Your goals will evolve as your life changes, and that’s okay! What matters is creating a flexible plan that lays the stepping stones for long-term success.
If you find yourself reacting emotionally to economic or political news, take a step back. Avoid making rash decisions and consult a trusted advisor who can help you stay grounded. Fear may drive headlines, but it doesn’t have to dictate your financial future.
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This content is for informational purposes only and is not financial, investment, or tax advice. Investing involves risks, including potential loss of principal. Past performance does not guarantee future results. ESG investments may not be suitable for all investors. Better Pockets Financial is a fee-only Registered Investment Advisor (RIA) acting as a fiduciary. For personalized advice, consult a qualified financial professional. Reference BPF's website www.betterpocketsfinancial.com for additional information and disclosures.
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