You may be familiar with the phrase “Trust the Process”, popularized by former Philadelphia 76ers’ General Manager Sam Hinkie. Hinkie’s phrase referred to the team’s strategy of acquiring assets such as draft picks which could be used to acquire superstar players for the team. The strategy resulted in some tough years for the team before it became a contender down the road.
Investing is full of things that are out of our control — Are the markets up or down this month? Which investments do well, and which do poorly? How long it takes to grow my portfolio to where I can retire?
To deal with this uncertainty, we believe the key to strong performance over the long term is “trusting the process” both in investing and financial planning. In this article, we will talk about focusing on process vs. outcomes, and steps that can be taken to be more successful over the long term.
Short-Term Hiccups
In the short run, it is easy to focus on investing results that didn’t go our way — A drop in the stock market immediately after you retire. A pick-up in inflation limiting how much you can buy with your income. A decline in the value of your company stock or a closely held business.
When things happen in the markets, economy, or your investment portfolio that are unwelcome, it is helpful to ask a couple of questions: Did I consider this when putting a plan in place? Am I following the process I laid out and is there any reason to change what I’m doing?
Did I Consider This When Putting a Plan in Place?
It sure would be nice if the value of our investments just went up in a straight line. However, we know that isn’t the case.
When putting a plan together, we know that the value of some investments could go up and down a lot. To account for this, you may take the following steps: keep a reserve fund, limit how much debt you use, match your investments with your time horizon.
If you can answer “yes” to this question, it’s now time to go on to the next question.
Am I Following the Process I Laid Out? Is There Any Reason to Change What I’m Doing?
It is important to remember that there are things we can control. By putting a process in place, you have laid out what steps you can take with the things you can control.
For your investing process, these may include:
- Staying invested through market ups and downs.
- Rebalancing your accounts periodically.
- Evaluating investments to see if they are still a fit for your portfolio.
- Considering how changes in market conditions could lead to portfolio adjustments.
- Seeing if your cash flow needs have changed.
Beyond just looking at your investment accounts, it is also important to have an ongoing process to address your financial planning. This planning process could have the following steps:
- Asking if your goals have changed.
- Revisiting your withdrawal rate.
- Reviewing changes in the legal and tax environment.
- Considering if you should be using different accounts to invest.
- Look at changing your contribution amounts.
- Reviewing your tax strategy.
- Asking if your estate planning strategy still makes sense.
- Reviewing insurance to see if the coverage in place is still appropriate.
When something happens in your investments or your life, revisiting your process gives you a structured way to see if you need to make any adjustments. This starts with building a robust process and continuing to follow it.
Takeaways
“Trusting the process” is not always easy. However, there is a comfort in knowing you are following a strategy you expect to be successful. Whether you take this on yourself or work with a financial planner, having a process around your investments and financial planning is the key to long-term success. If you would like to talk with a financial planner about how we apply our process to help our clients, please schedule a call with us here.
The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.
Advisory services offered through Financial Life Management, LLC – Doing Business As – SummitView Advisors, a Michigan registered investment adviser. The adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment advisory services. Investments involve risk and are not guaranteed. Be sure to consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein.