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what do I filter out, and what do I tune into?

People who’ve worked with me know one of my favorite sayings: “benign neglect is one of the best investment management practices you can engage in.” (I wish I could say I came up with it; rather, it was Warren Buffett, though his language was a little stronger.) The financial news is constantly looking for something to panic over; a few weeks ago, it was China, and before that it was Greece. The Wall Street Journal says it better than I can; go ahead and read, I can wait.

At the end of the day, 99% of financial news can be boiled down to this: “the markets go up, and the markets go down”. But we already knew that, didn’t we? Especially my clients, who through their weekly statements have become accustomed to the short-term ups and downs of the stock market.

But if we’re supposed to ignore 99% of financial news, that doesn’t mean that we should just stick our heads in the sand, does it? No, of course not. The question to ask is: how does this affect me in the long term? Not the global economy, not in the short term: me, in the long term. So if someone talks about oil prices — which are constantly bouncing around — then you can safely ignore it and change the channel (or turn to the sports section); but if you come across an article where an economist talks about a change in long-term projections, then your ears might start to perk up a bit.

Of course, while such articles do indeed discuss the long term, they don’t talk about *you*, in particular. For that, we need a metric for how on-track you are to meet your goals. And no, I don’t mean just your current portfolio balance! As we said earlier, the market is constantly going up and down, and investing isn’t a game where you’re just trying to get more dollars; rather, it’s all about balancing risks against reward. Is your portfolio too heavily weighted towards stock, such that a sudden market correction at the wrong time might throw a wrench in the works? Or is your portfolio weighted too heavily towards bonds, so that it’s not growing fast enough to meet your needs?

My clients are familiar with the “success rate” metric that I use for exactly this purpose: a percent value that represents the likelihood, after all the ups and downs of the market, of meeting your goals. This kind of number is the Gold Standard, the ultimate arbiter of whether you should take action based on the financial news: if the market takes a dip, but your success rate is still in your target range, then you can sleep peacefully. If your success rate starts to drop below target, then you can still sleep peacefully, but now you have work to do: perhaps changing your allocation, revising your goals, increasing your savings rate, or delaying retirement. Regardless, you have an indicator that tells you exactly how much action to take –no more, and no less.

Sounds pretty cool, doesn’t it? Instead of some vague feeling of dread that you might not be able to retire, you can get a concrete indicator that tells you exactly when it’s time to take action. If this is something that sounds interesting to you, I’d be happy to put together a financial projection for you, gratis. (Even if you already have a financial advisor, it’s worth getting a second opinion — or a first opinion, if they don’t offer this kind of metric!) Just send me an email, and I’ll be in touch!

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