It has never been more obvious than now that human beings are not clairvoyant. The current pandemic is a daily reminder of that. Even though we like to get away from uncertainty, dealing with uncertainty thoughtfully will enable us for better future outcomes. Here are some simple strategies you can apply to create a plan for tomorrow, even though you might not know what tomorrow, next week, the next quarter or the next year will bring.
1. Implement a long-term strategy you can stick with. You need a strategy to reach your goals. That is true in life, in work, and even in your relationships. Deciding on a plan must involve looking at the range and likelihood of possible outcomes, especially negative future outcomes. Things might turn around or things might get worse – it is important to be prepared for both possibilities. Try to make a plan that gets you through the tough times, so you can benefit from the good times to come. The key is to avoid choosing a path with more risk than you can tolerate. Different people are comfortable with different levels of risk. Investing is inherently complex and whether you chose to deal with this complexity by yourself or with the help of a financial professional is ultimately your own choice. But you have to tackle this complexity in unison with your own risk tolerance, keeping your life goals in mind during the planning stage. The goal at this stage is to be comfortable with your long-term strategy because it is easier to stay the course through both good and bad times with a clearly thought out strategy backing you up when the going will get tough.
2. Control what you can control. You cannot control stock and bond markets and their returns are inherently unpredictable in the short run. What you can control, though, is how much you save and how much investment risk you take. Similarly, you cannot develop a COVID-19 vaccine on your own, but you can control wearing a facial mask, washing your hands, and social distancing. Every day, focus on the things you can control and work toward the long-term plan you have implemented in step 1 (see above). It's all about making the best-informed choices for yourself. This approach gives you the best chance of winning, both in your investment life and in your personal life.
3. Judge yourself by the quality of your decisions, not by their immediate outcome. Even when we focus on controlling what we can control, things outside our control can have a substantial impact as we are experiencing during the current pandemic. What really matters is how we respond and the choices we make going forward. The future is uncertain, but the quality of your decisions should never be uncertain. When you feel good about the choices you make, even when things don't work out the way you had initially hoped for, you have the satisfaction of knowing you did everything you could, based on the long-term strategy implemented in point 1 above and the resulting quality of your decisions. Ideally, you should base your decisions on academically peer-reviewed insights in the financial sciences by following a low-cost, evidence-based portfolio implementation approach and by diligently rebalancing as the market gyrates up and down.
Even though many people instinctively fear it, uncertainty always creates opportunity. After all, if there were no uncertainty, there would not be a premium for investing in risky assets like bonds and stocks. Dealing with uncertainty thoughtfully will enable you to reach a better future personal investment experience and investment result.