When planning your financial future, don't let your dreams run away with you.
There are many types of financial planning and investments, but if you use reality and logic, you are more likely to succeed.
“PessCredit: Image: Salvatore Vuono / FreeDigitalPhotos.netimists always win,” a client recently told me. “If the market goes down, you were right. And if the market goes up, you make money. Either way, you win.” While my client’s logic sounds reasonable, I would personally rather be a realist than a smug or pleasantly surprised pessimist.
While being optimistic is generally a positive trait, don’t be too sanguine and overestimate yours or your advisor’s skills. Don’t think he can control the market, and certainly don’t underestimate the odds that the market’s movement could adversely affect you. While many investors want to hand over the day-to-day management of their investments to a professional, this doesn’t mean they can give up all decision-making. Always take the time to have your financial advisor explain both the pros and cons of any investment program you are considering. While licensed financial advisors have undergone professional training, don’t leave your own rationality outside the conference room. Advisors like clients who ask questions and are interested in the details of their investments. In fact, you should be wary of advisors that don’t divulge the details about specific investments.
Every investor needs to be aware of the downside possibilities. Ask your financial advisor why he made a specific recommendation and what events could possibly make it fail. Then, monitor your statements to make sure that your portfolio’s movements jive with the explanations that you receive.
In the end, it doesn’t so much matter whether you’re an optimist or a pessimist. “An optimist will tell you the glass is half-full; the pessimist, half-empty; and the engineer will tell you the glass is twice the size it needs to be.” If you are realistic about your goals and the possibilities of gain and/or losses of your investments, you have the potential to be a satisfied investor.
To find out more about how you should not be guided by fear or unrealistic expectations, read, Investments and the Price of Fear.
Disclaimer: This article is for educational purposes and is not a substitute for investment advice that takes into account each individual’s special position and needs. Past performance is no guarantee of future returns.