Have you ever been distracted, and the consequence was that something bad happened?
I’m not talking about crashing a car bad (but that qualifies). Maybe you were painting the bedroom wall, the dog distracted you, and you ended up painting the trim. Or you were on the phone with a friend and forgot the cake in the oven. Lots of things get damaged or ruined when we allow ourselves to get distracted and lose focus on what we’re really trying to accomplish.
The same is true of investing and planning.
The Market Right Now
Harry Dent says the market is going to crater soon, while David Tepper is bullish. Toss in Mohammed El-Erian straddling the fence, and you have pretty much all the options on the table. What should you do? If you’re one of our planning clients, the answer is probably “nothing”. Why? Because the way we structure investments makes much of what’s going on around us into “noise”. (Time for some noise-cancelling tech.) But what if you’re not a client? Here’s a little help…
The Money Pot
Think of all your money as being in a giant pot that you dip into when you need it. Now, think of your income as a faucet that’s continually putting money into your pot. You know you’re going to need some of that money this month for bills. You’ll probably need some more for things like college, car replacement, etc. But a lot of the money is going to stay in the “pot” for years and years. Since that’s the case, go ahead and separate your money into three pots – short-term, medium-term, and long-term.
Your short-term money should be in cash so why worry if the market is nuts? Your long-term money is there for, well, the long term. We know there will be market ups and downs but that the market rises long term. What’s happening today is just noise for your long-term money. But what about your medium-term money? This is where it gets complicated because you want some return, but don’t have enough time to recover from a market tumble. Here’s where you want to pay attention and simply be cautious with this pot. If you need help, just ask.
So, about that question…
I started this with a question about focus. I’ll end by saying – keep your focus on the long term and don’t get distracted by the noise. If you needed to save $2,000/month last year, you probably still need to save $2,000/month so get going!