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BAM Intelligence

One Thing You Can Do With Your Portfolio Right Now

When the markets get scary, there’s an overwhelming temptation to do something, anything really, with our portfolios. But we know better. We all know on an intellectual level that selling during a dip is a bad idea, and the data confirms that successfully timing the market is, at the very least, highly unlikely. Yet it feels crazy to just sit in front of what feels like an oncoming train.

Knowing how strong that feeling is, I want to give you something to do during any scary market.

First, give yourself a break for feeling this way. It’s normal. We equate the market going down with pain, and we’re hardwired to get away from the things that cause us pain. This trait helps us survive as a species, but it’s less helpful when it comes to investing. By recognizing why we’re reacting a certain way, we can give ourselves a small break. Yes, it’s normal to feel like we should get out. But because our goal is to avoid reacting to pictures of scared traders, what should we do instead?

Pull out a piece of paper. You’re going to remind yourself why you’re doing what you’re doing and why you’re invested the way you are. I’m not talking about why you own specific investments, but why you are investing in the first place.

The foundation of this whole process is the question, “Why is money important to you?” I hope you already have this answer written down on a piece of paper called a financial plan. But if you don’t, now is the perfect time to figure out your answer.

For me, that answer is: time spent with my family, mainly outside, and serving my community. When I first answered this question, I probably started with a word like “flexibility” or “freedom.” I kept pushing to figure out what those words meant. It turned out that I cared a lot about time, and then “time” became “What would I do with that time?” That’s how I got to my big “why.”

Your answer will probably be a bit different, but once you know it, you can answer the next question, “What do I want?” Think of this question as a way of stating your goals.

For instance, let’s say you want $5,000 to hit your bank account every month after you’ve retired so that you have enough money to live on. The money may come from a collection of things like investments, Social Security or even a pension. You probably also want to give yourself a little raise every year to keep up with the cost of living. Be specific, and whatever your goal, write it down. With your “why” and “what” in mind, it’s time to look at “how” you’ll do it.

So, does how you are investing create the greatest chance of meeting the goals that express your values? Obviously, you don’t want your investments to be based on advice you heard watching the financial pornography network. That’s a perfect recipe for building a smorgasbord of investments, making you a collector and not an investor.

Still, if you can’t connect how you’re investing to your values and goals, it’s time to hit the pause button and review your answers to these questions. Do you need to realign your “how” to better match your values and goals?

If you decide changes are needed, sit down in front of a video camera (there’s probably one on your phone) and capture your commitment to make these adjustments when the markets are more stable. The video is important because I want you to see the fear in your eyes so you remember how you felt at the moment you realized that there was a disconnect. It will increase the odds you’ll follow through when things settle down and it’s time to make changes to your investments to match what you’ve learned.

Many of you may have already sailed through this exercise, and your “why,” “what” and “how” align perfectly. If so, you’ve done everything you need to do. You don’t need to do anything else, even (and especially) when markets bounce around. When you revisit these questions in the future, you may find that your values or goals have changed. But only then will you need to worry about updating your investments.

So turn the noise off and walk through these questions, preferably during a conversation with someone else so you have to talk it through out loud. It’s the perfect antidote for what supposedly passes as financial advice in a scary market.

This commentary originally appeared August 31 on NYTimes.com

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The opinions expressed by featured authors are their own and may not accurately reflect those of the BAM ALLIANCE. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2015, The BAM ALLIANCE

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Carl Richards is the creator of the weekly Sketch Guy column in The New York Times and is a columnist for Morningstar Advisor. Carl has also been featured in The Wall Street Journal, Financial Planning, Marketplace Money, The Leonard Lopate Show, Oprah.com and Forbes.com. His simple but meaningful sketches served as the foundation for his first book, “The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money.”

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