Ralph has always been aggressive when it comes to investing. But as he ages, he’s second-guessing himself more and more. Is my approach the best approach?
Here’s what I’d tell Ralph: It depends on how you define financial success.
I find people define financial success in three broad ways. Often these definitions are unconscious and emotional. See if you can identify which definition best aligns with your approach to finances.
- Success means “Protection—I’ve got to maintain what I’ve got!” This person’s motto is “Don’t lose!”
If you’ve got $10,000,000 in the bank, but you eke by on $50,000 a year, this is likely your idea of success. The only way you’re taking a chance is because you want to gain something otherwise unattainable—like growth on your money. On the other hand, if you’ve already got enough, why risk anything? Risk is…just too risky!
Here’s how this view can be problematic: oftentimes, the very fear of loss assures loss. Most folks simply don’t have enough assets to be financially independent. In order to accumulate those assets, they’ll likely need to invest a portion of their money in a portfolio that has some element of risk.
- Success means “Progression—I want to make steady gains.” This person’s motto is “Don’t stop.”
This is the balanced approach most of us need to take. It requires thoughtful planning and disciplined behavior. What kind of behavior? Here are four actions anyone can take:
- Control your spending so that your income exceeds your outgo.
- Invest a portion of your income regularly.
- Meet with your financial professional regularly for a check-up. (Annually is about right for most folks.)
- Resist the urge to panic when—not if—financial setbacks occur.
The final definition of financial success is the most toxic.
- Success means “Perfection—I can’t make any mistakes!” This person’s motto is “Don’t fail…ever!”
The financial perfectionist sets the bar so high no one can get over it. As a result, money is a source of constant worry and stress. And if Peter Perfect does somehow reach a level of financial achievement, you can be sure his kids will never measure up. Somebody always ends up unhappy with this approach.
I urge you to get over your fear of failing to be perfect. You’ve never been financially perfect and you never will be.
Back to Ralph…he’s not alone in becoming more financially cautious as he ages. That’s a common tendency.
But what he—like all of us—needs to guard against is making financial decisions based on a superficial understanding of success or on the powerful emotions that bad definition generates.
In the end, your money doesn’t care how you feel.
Speaking of money and feelings, if you’re fretting about how to turn your retirement savings into regular retirement income, take the free RISA (Retirement Income Style Awareness) questionnaire. This quick little quiz is a great first step in figuring out a plan that works best for you. Email me (bmoore@argentadvisors.com) for your link to take this free quiz.
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