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Investments are for the future, not to get rich quick. But it’s still hard for many of us to stay focused on the long term, especially as we are inundated with financial news and the potential impacts of market shifts. We sat down with Joe Sicchitano1, Senior Vice President and Head of Wealth Planning and Advice Delivery for SunTrust, for his perspective on why a long-term approach is the best way to achieve your goals and stay mindful of your values.
Why do you think investors are prone to make hasty decisions when it comes to something as important as financial planning?
I think there are so many things that conspire to pull people’s attention to the short term at the expense of the long term. Emotion is something that’s easily manipulated, and there’s so much distraction. There are so many things that happen in the world that shift our focus and get us excited or scared, and that naturally creates a consequence of sacrificing long-term decision-making.
What’s the best way to keep emotions from negatively affecting someone’s financial plan?
You can have a brilliant financial plan and behave in a certain way during a moment of panic that could undo years and years of good planning because you made a bad decision in the moment. So one of the important roles of advisors, whoever they are—financial advisors, parents, trusted experts in other fields—is they are behavior regulators. The point of having a plan is to execute it consistently over a long period of time. We all know the market is going to jump up and down, but if you panic every time it drops a little bit and you bail out, you’re going to fall into the trap that so many people do. Selling early, buying late, that’s a recipe for disaster.
So a good advisor is going to ask questions and rehearse scenarios that will be emotionally charged. You have a career change. You have a period of unemployment. You have a period of illness. The market goes crazy. Inflation goes crazy. Any of those scenarios, in the moment, will be charged with lots of emotion. So if we can kind of think about the consequences in advance, it becomes like a drill. Your comfort and your ability to manage those emergency moments are just as critical as having a good plan in the first place.
Challenge: Consider the worst-case scenario and develop a contingency plan. This will go a long way in providing peace of mind and prepare you for all of life’s bumps in the road.
Why is it so important to take a holistic view of your entire financial plan?
Sometimes people will treat financial planning like it’s compartmentalized when in fact, it’s not. Good financial planning is like construction. For example, if you just build blocks one on top of the other, you can build really tall structures, but they’re not stable. If you look at a building, the bricks are typically staggered and laid out in a different structure because the strength of one brick lends itself to the strength of another brick. Weakness from one brick is offset by strength in another. That’s what financial planning is actually like, and good decision-making means asking how each decision will impact other areas.
Financial planning is deeply personal, and all clients will naturally have different goals and different appetites for risk. Is there a good rule of thumb that works for everyone?
So, I call it the sleep test. In general, you won’t be financially confident if you’re sitting up at night worried about your portfolio. So that’s a good starting point. But part of the process of financial planning is educating clients of other types of risks that are just as detrimental to them as market fluctuation. So one risk-averse person who has all his money in cash may think, “Well, I can sleep at night because I don’t see my portfolio jumping every time the Dow jumps,” but how much peace of mind is the knowledge that inflation is slowly eroding your purchasing power? The sleep test requires us to walk through every type of risk so that you’re assessing the broad spectrum, not just market risk.
How can working with an advisor impact financial planning decisions?
Clients know advisors are already experts when it comes to financial planning, otherwise they wouldn’t be meeting with them. What’s often missing is an advisor’s expertise in each client. Once they have that, they can apply financial expertise through that lens and come up with more specific solutions. Because the future is a murky mass of cloudy images, it’s very critical for clients to be clear about what’s important to them, to what degree. This helps you take all of the inapplicable options off the table and get focused on the ones that matter. There’s a quote I’ve used a million times from Alan Lakein [noted author on personal time management], to the effect of “The financial plan is about bringing the future into the present so we can act on it today.”
- Understand your emotions: Irrational reactions are a main reason financial plans veer off course.
- Take a holistic approach to your financial plan and think about how every decision impacts all others.
- An effective financial advisor will learn about you (goals, risk appetite, values) and then evaluate options.
Challenge yourselfInterest: Sometimes you’re earning it; other times you’re paying it. Keep reading: The more you know about this concept, the more it can help your financial plan.
1 Joe Sicchitano, Registered Representative, SunTrust Investment Services, Inc., Investment Adviser Representative, SunTrust Advisory Services, Inc.
This content does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.
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