Investors are constantly exposed to headlines about market movements, interest rates, inflation, and a variety of other economic data. Whether it’s financial media, social media, or the evening news, there is an endless stream of information competing for our attention. While these events can influence markets and our daily lives, most of them are largely outside of our control.
When it comes to your finances, success is often driven more by focusing on what you can control than by worrying about what you can’t. Rather than trying to predict the next market move or economic event, investors may be better served by concentrating on the decisions and habits that can have a meaningful impact on their long-term financial outcomes. In this article, we’ll explore several key areas of a financial plan that are within your control and discuss how managing them effectively can help position you for success.
Number one on the list is your savings rate. This is a foundational piece of any financial plan. I’m sure you’ve heard the old saying, “Spend less than you make.” It’s a simple concept, but it has stood the test of time because it’s true. If you don’t consistently spend less than you earn, it becomes very difficult to make progress toward your financial goals.
At its core, your savings rate is about sacrificing a little today to create more opportunities tomorrow. Whether your goal is starting a business, purchasing a home, paying for a child’s education, or retiring comfortably, consistently saving and investing can often have a greater impact on your long-term success than trying to pick the “perfect” investment.
One of the most effective ways to improve your savings rate is to increase it gradually over time. Saving 10%, 15%, or even 20% of your income may seem overwhelming when you’re first getting started. However, increasing your savings rate by just 1% or 2% each year can make a meaningful difference over time and help accelerate progress toward your goals. While you can’t control market returns, interest rates, or economic conditions, you can control how much of your income is being put to work for your future.
The next area investors can control is their asset allocation. Simply put, asset allocation refers to how your investments are divided among different asset classes, such as stocks, bonds, and cash. While you cannot control how the markets perform, you can control the mix of investments you own.
Choosing an appropriate asset allocation should be based on several factors, including your comfort with risk, the purpose of the money, and the amount of time before you’ll need to use it. These factors help determine the types of investments that may be suitable for your situation and the level of risk that makes sense for your goals.
Building a portfolio with a variety of assets can also help reduce reliance on any single investment, company, or market sector. This concept, known as diversification, helps spread risk across different investments rather than depending on one area to drive your results.
When done properly, asset allocation can help you pursue the rate of return needed to achieve your goals while maintaining a level of risk you can comfortably live with. The best portfolio is not necessarily the most aggressive one. Instead, it is the portfolio that aligns with your goals, matches your risk tolerance, and allows you to remain invested through the inevitable ups and downs of the market.
Another factor you can control is your time horizon. Different goals require different investment strategies. Long-term goals, such as retirement, often allow investors to accept more short-term market fluctuations because they have time to recover from periods of volatility. Short-term goals, such as purchasing a home or funding a major expense in the next few years, typically call for a greater focus on liquidity and preservation of principal.
One of the biggest mistakes investors can make is investing short-term money as though it were long-term money. Understanding when you’ll need the money helps determine the appropriate level of risk for that portion of your portfolio. Your investment strategy should be guided by your goals and timeline, not by predictions about what the market may do next month.
The final factor investors can control is their behavior. While this may sound simple, it is often one of the most challenging aspects of investing. Markets will experience periods of growth and decline, and it can be tempting to let short-term emotions drive long-term decisions.
Fear can lead investors to sell during market downturns, while greed can lead them to chase investments after they’ve already experienced significant gains. Both reactions can pull investors away from a well-thought-out financial plan and potentially hurt long-term results.
One of the best ways to manage emotions is through education and understanding. When you know what you own, why you own it, and how it fits into your overall financial plan, you’ll often feel more confident staying the course when markets become uncomfortable.
Successful investing is often less about predicting the future and more about maintaining discipline through changing market conditions. Investors who consistently follow a thoughtful plan are often better positioned than those who frequently change course based on emotions or short-term market movements.
While no one can control markets, interest rates, inflation, or tomorrow’s headlines, investors can control their savings habits, asset allocation, time horizon, and behavior. By focusing on these controllable factors, investors can spend less time worrying about unpredictable events and more time making meaningful progress toward their financial goals. Over the long run, success is often determined not by accurately predicting the future, but by consistently making sound decisions with the things you can control today.
-by Jacob Young
Financial Advisor, RJFS
313 East 10th Ave.
Bowling Green, KY 42101
Phone: 270-846-2656
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Ben Smith Life Compass Financial is not a registered broker/dealer and is independent of Raymond James Financial Services.
Investing involves risk and you may incur a profit or loss regardless of strategy selected. Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
This content was created with the assistance of artificial intelligence (AI). While efforts have been made to ensure the quality and reliability of the content, it is important to note that AI-generated content may not always reflect the most current developments or nuanced human perspectives.
Raymond James and its advisors do not offer tax or legal services. You should discuss any tax or legal matters with the appropriate professional.
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