Recently I did a Zoom interview with financial coach Lisa Duke. Her Money Club community members submitted questions for a financial planner in advance. I love this one:

Substitute your own troublesome topic for the words “financial planning” in this question…and think about how often we ask ourselves this question. Like the person who submitted this specific question, we’re pretty sure we know what the answer is—look at the way the question is framed as a statement, seeking confirmation. But we’re asking “do I really have to force myself to do this”?

It could be a bad relationship, deferred maintenance on the house, unhealthy eating habits, your overdue income taxes or deciphering medical bills. We know we should face up to it, but it is more comfortable in the moment to ignore it. So we put it off. Our financial lives fall into this category, at least some of the time, for all of us. Even financial planners occasionally defer a money task or decision cause we just aren’t up to it at the moment.

Unburying your head

Many of my clients feel shame around their finances. I can relate—I have felt this shame, too. Wherever we are on the spectrum of financial sophistication, from very savvy to completely naïve, we feel that we haven’t done enough, soon enough or well enough. Money is right up there with sex on the list of things we don’t talk about, but anytime you’re going to take on an area that feels scary or confusing or just plain punches your buttons, you shouldn’t do it alone. You want a supportive, non-judgmental advisor or friend by your side while you sort it out. A financial planner or coach can help you determine, in a judgment-free zone, what to take on first for a maximum benefit for the stress. If you’re a DIYer, enlist a trusted friend or a support group. Even during the pandemic, there are plenty of social media groups where members share information and support each other. But, yes, as with our other problem areas, it usually is better to pull off the band aid and take a look than ignore the problem and risk a serious infection.

Always?

That word, always, trips me up, though. Is anything always true? Other than the certainty of death and taxes, most of life falls in that yawning grey in-between. And there is an instance, when it comes to financial planning, when we’re better off being an ostrich. That would be when it comes to managing our investments. Don’t stop reading now and ignore your investments, there are criteria:

You do need to have an investment strategy. That means that you know what your goals are and you have a plan in place to achieve them that takes into account your timeframe, risk tolerance and risk capacity. Whether you work with a financial planner to develop your investment strategy or do it yourself, you need to have one.
Implement your investment strategy.

Those are the criteria. Now you can bury your head in the sand. Do yourself a favor and don’t continually monitor your investments or search for ways to change up your strategy. Stay the course. The data shows that the fewer changes and adjustments you make, the better your investments are likely to perform over time.

The much cited Fidelity study

Numerous studies have shown that individual investors tend to underperform their investments. For example, if an S&P 500 index fund returned 10% over five years, an individual investor in the fund might instead only earn 6% during the same period. And it isn’t due to fraud or even fees, but instead that the investor moved money in and out of the fund, due to his changing outlook, or possibly due to unforeseen needs for the money. They didn’t stay the course.

One of my favorite behavioral finance data tidbits is an often referenced (though I can’t find an actual citation) Fidelity study on this topic. Fidelity did an analysis of all of their accounts to see how if the account owners achieved the same performance as their underlying investments, or if their performance lagged. Sadly, most accounts did worse. There were two types of account holders, however, who were much more likely to do as well as their underlying investments—those who had died and those who had forgotten that they had a Fidelity account. These account holders were able to stay the course.

I have never recommended dying as an investment strategy (though my dad did tell me that was his strategy to make sure he didn’t outlive his money. Thankfully, he still had some of his nest egg left when he died in February at 98!). I don’t even recommend forgetting where you hold your investments. But burying your head in the sand and “forgetting” about investment performance, once you’ve got your strategy in place, works really well. Don’t monitor the volatility and it won’t make you crazy. Then you, too, will be able to stay the course and achieve market rates of return.

One final caveat

This ostrich strategy only makes sense when you’re a long-term investor pursuing a long-term strategy, preferably using passively managed index funds. These are the type of investments that I recommend my clients use. If, instead, you have chosen to go the active management route by investing in actively managed funds or relying on hot tips from your cousin Charlie, by all means keep an eye on them. And if the monitoring gives you heartburn or keeps you up at night, maybe you should consider joining those of us following passive long-term strategies that allow us the luxury of burying our heads!

Looking for a supportive, non-judgmental planner to help you sort out your finances? Give me a call (336-701-2612) or send me a message.

Investment advisor representative of and investment advisory services offered through Garrett Investment Advisors, LLC, a fee-only SEC registered investment advisor. Tel: (910) FEE-ONLY. Fair Winds Financial Advice may offer investment advisory services in the States of North Carolina and Texas and in other jurisdictions where exempted.