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News and Insights » The Power of Process

With the Olympics right around the corner, I recently read an article about world-class athletes and their approach to success. The author described how the greatest athletes, from Olympians to all-star profession-als, focus on process rather than outcome when competing at the highest level.

For example, imagine yourself playing in a championship basket-ball game. Your team is trailing by one point. You are fouled just as the game clock goes to zero. You have two free throws. Make both and you win - miss them and you lose.

What do you do to contain the pressure and focus on the task at hand? Great athletes have a process. While the individual process may vary, each one reflects a personal routine a player has per-formed thousands of times in a more serene environment (prac-tice). The effective athlete does not hope for an outcome or get scared as the moment approaches. He or she immediately falls back on the tried and tested routine performed countless times in practice. Following the routine dulls the noise of the crowd and brings clarity of mind.

A chaotic market is akin to what the visiting team experiences in a gym, where opposing fans and players are doing everything possible to distract you. Daily market news and commentary can challenge your investment discipline. Some messages stir anxiety about the future while others tempt you to chase the latest invest-ment fad. When tested, stay focused on a routine burned into your nature through coaching and repetitive practice.

The components of the seasoned investor’s routine should be similar: Investors should follow a process that emphasizes the creation of a financial plan tailored to specific financial goals. Investments should be structured around expected dimensions of return with strong consideration given to risk tolerance and objectives while emphasizing diversification and low-cost port-folios.

Bouts of volatility can serve as opportunities to review family financial goals, liquidity requirements and asset/income protec-tion needs. These conversations during good and bad markets help prevent being overcome by short-term emotions, as reacting to current market conditions may result in poor investment deci-sions.

This is just one of many possible stories and anecdotes that par-allel the skills of successful investors.  Other examples could in-volve a great musician, surgeon or entertainer. In each case, there is a story of discipline behind the person who continually works to perfect their craft and a reminder of how a successful investor can do the same.

Just about everyone remembers the 2008–2009 global financial crisis, having experienced the anxiety of plummeting investment accounts themselves or knowing someone who did.  Middle-aged investors may consider the tech boom and bust of the late 1990s and early 2000s to be the bellwether event for a generation of in-vestors who assumed they could get rich on internet stocks. Some older investors regard the 1973–1974 bear market as the toughest period in their investment lifetime.

The market decline in early 2016 has much of the same feel as past events. Times like these are never easy for investors, who must confront their concern that “things just might be different this time”. When in the midst of a market decline, it is natural to sense that the volatility is lasting longer and is worse than any-thing before.

Regardless of the market or time period, investors can maintain the discipline needed to follow a process, which can lead to a better investment experience and higher probability of achieving goals. Just as the seasoned professional athlete navigates through the moments of pressure in any athletic event, having a compre-hensive financial plan is part of a process that allows investors to navigate through chaotic markets.

April 12th, 2016 @ 8:49am by ryan
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