Want to know one of the most important factors in investing for your future? Motivation.
In my experience, thinking about the motivation behind your money is better for your finances in the long run than just focusing on the size of the pot.
Think about it this way. Training for a marathon requires months of preparation. You need motivation to keep your head in the game. This might be downloading a week-by-week schedule to help you reach your goal, or even finding a training buddy to keep you on track.
Compare this with the occasional trip to the gym, or jog round the block. No real plan or fitness schedule. Both methods will make you fitter – but which of the two will you get the most out of?
It’s the same with financial planning. Setting a clear strategy gives your investment purpose. The end goal is about more than just making money. It’s what you do with it that counts.
When is a strategy not a strategy?
In fact, it’s when the focus is on ‘saving money for money’s sake’, that we see mistakes being made.
The current obsession with cryptocurrencies like Bitcoin is a perfect example. We’ve written before about how, if you’re looking for a sustainable way to build your wealth, this kind of investment is not the answer..
The potentially higher returns can tempt new buyers in, but they mask the fact that cryptocurrency is hugely volatile. Look at the wild swings in the Bitcoin price so far this year. Since January, it’s twice gone over the $60,000 mark (from less than $30,000), but in May alone it lost half its value.
With no data points to rely on, what makes Bitcoin rise or fall is still a complete unknown. Your investment is truly at the mercy of market sentiment (just look at what happens every time Elon Musk tweets about cryptocurrency).
Focusing on the money and not the motivation also means there’s a danger of anchoring – fixating on achieving a certain exit price – for example “I must make £1 million by the time I’m 50”. This sort of ‘strategy’ isn’t really a strategy at all, and it can even be detrimental to your overall investment. Being aware of “anchoring”, as psychologists call it and being aware of it, doesn’t make me any less immune.
Planning for the future requires ignoring this daily noise of trading and focusing instead on performance over the next several years. Chasing high gains in the short term to reach your financial goals means constantly checking your investments. The obsession over daily fluctuations could take over your life.
Trust your portfolio
Just the thought of investing in this way gives me palpitations. For my clients, I want a plan that helps every one of them achieve their financial goals, backed by an investment portfolio they can trust.
No investment strategy can perfectly predict the future. But with 120 years of market data to analyse, it’s possible to assess previous trends, learn from the past and plan for different scenarios. We keep analysing our investment philosophy, which I’ll explain more in future blogs, but when we do we find we have out performed similar portfolios by as much as 10% in the last 5 years. But did we do so over all timeframes? Given enough time, yes.
Setting your goals
Just like the marathon training regime, it’s important to set clear goals and financial objectives. Whether that is over the long-term, such as retirement, or something in the nearer at hand, this gives you the parameters to decide which investment approach is for you.
And as we’ve seen over the last year, our goals can change – sometimes with little warning. You may want to draw down your investment earlier than expected, or otherwise change your investment horizons. There will always be bumps in the road, but a good training schedule – and financial plan – can adapt and evolve to take these into account.
Thinking long term, having a solid and dependable financial plan, and focusing on the objectives (and not the size of the pot) keeps your money motivated and, ultimately, can help you achieve your investment goals.