The Importance of Long-Term Financial Planning

Thursday, May 23rd, 2013

The markets are down, then the markets are up – it’s enough to drive even the most stoic investors a little crazy.  Market volatility can seriously affect your perception about how risk-tolerant you really are, and may even convince you to prematurely terminate some investments or jump into others in a moment of panic.

It’s the very fact that things can get unstable, though, that underlines the need for a long-term plan, and the necessity of sticking to that plan.  Although it’s easy to get emotional when so much is at stake, a good long-term financial plan takes things like shifting markets into account, along with built-in contingency plans should things not go how you expect them to.  This helps take snap decisions out of the equation when things get hectic, which in turn protects your portfolio from the damage that can be caused by rash emotional decisions.

The recession of five years ago may have caused significant issues for investors, but these kinds of changes may be something that we’ll just have to get accustomed to.  It’s very likely that we’re looking at a future where significant market swings will become more common, which means it’s more essential than ever to have plans in place to ride the waves rather than being capsized by them.

It’s important to understand the damage that can be done by leaping in and out of investments without getting advice first.  If you’re the one whose assets are at stake, you may not be the best person to be making decisions when things take an unexpected turn.  The instinct for self-preservation almost always favors doing what seems right in the short-term, without considering what the long-term repercussions can be.  Setting up a flexible portfolio with an advisor can not only benefit you when things go wrong, but can also help prevent things from going wrong in the first place, or at least cushion you from sudden changes in market situations.

If you know you’re prone to emotional investing, or if you’ve ever had to pay the price for having gotten out of an investment you should have held onto, it may be time to rethink your strategy, especially in terms of crisis management.  The stronger your long-term plans, the less likely you are to bend to the whims of the markets, and the greater your chances of weathering temporary storms and coming out intact on the other side.