How to change your short-term mindset.

 

Most people who have sizeable invested assets make the preservation of those assets a top priority, says Jerry Miccolis, who serves high net worth people every day as Chief Investment Officer of Brinton Eaton, a wealth-advisory firm in Madison, NJ.

This requires a focus on the long term.  “You’re not going to find too many day traders among the rich,” says Miccolis, who’s also co-author of Asset Allocation For Dummies (Wiley, 2009).  “They know that chasing short-term returns is never a good plan.”

Unfortunately, it’s regular folks—those who can least afford it—who often take the biggest gambles with their money, Miccolis adds. Trying for short-term gains is highly speculative.  “A few people get lucky over short periods, but do you really want to bet your financial future on a run of good luck?” he asks.

Miccolis recommends that investors:

Stop Thinking Short-term. Extend your time horizon and view into the future.  And focus on what your portfolio really needs to do for you over the long haul.

Do a Cashflow Analysis. To truly determine what your portfolio needs to deliver.  There is really no substitute for estimating what your “lifetime cash flow” is likely to be, considering all your sources of income (wages, pensions, Social Security, etc., as well as your investments) and all your expenses (the ongoing costs of maintaining your lifestyle, as well as one-time expenses). And don’t forget to factor in inflation. There are a number of easy-to-use software tools to help you do this, such as Quicken and Microsoft Money, as well as online tools from financial institutions such as Fidelity Investments and Vanguard.

Test Different Investment Strategies. Once you do a lifetime cashflow analysis, which is important in its own right, you can try out different investment strategies, from conservative to aggressive, to see which strategy secures your financial future with the greatest degree of safety. The answer may not be obvious. For example, the safest portfolio for you isn’t necessarily the most conservative one.  “The safest portfolio is one that provides the greatest chance of meeting your long-term financial needs with the least risk of failure,” Miccolis says.

Stop Worrying About Day-to-Day Market Movements. One thing that this exercise forces you to do is to take the long view of your financial situation. “If you want to get ahead, stop worrying about day-to-day movements in the market or individual securities and focus on your long-term goals,” Miccolis advises.

Miccolis, CFA®, CFP®, and Fellow of the Casualty Actuarial Society (FCAS), is a senior financial advisor, Chief Investment Officer, and co-owner of Brinton Eaton.

About Brinton Eaton
Brinton Eaton is a boutique advisory firm with a long history of serving affluent individuals and their families across multiple generations. The firm helps its clients protect, grow, administer and ultimately transfer their legacy of wealth through a full range of integrated services, including lifetime cash flow projections, financial/tax/estate/retirement planning, investment management, charitable giving, and business succession planning. Brinton Eaton’s clients tend to be corporate executives, professionals, entrepreneurs, and retirees with investable assets over $2 million. For more information, visit  www.brintoneaton.com.