Doing All The Right Things

I am diabetic.

This is one of those situations we’re dealt with in life that requires changes – and paying attention to a lot of stuff we never wanted to pay attention to. Like eating right, exercising, taking appropriate meds, and monitoring and adjusting. It’s a lifestyle change.

What I’ve continued to notice is that, even when I do most of the right things – I exercise regularly, walking for 45 minutes a day, stay far, far away from sweets of any sort, take the right meds at the right times, and monitor things closely – I can still wind up with a high blood glucose level.

How can that be?  Well, it turns out that just staying away from sweets and sugars isn’t the whole answer – I also need to refrain from most starchy foods and have more proteins and vegetables in my diet.  Frustrating?  You bet.  Futile?  Of course not – I just need to do ALL of the right things.

So what does all this have to do with financial stuff?

Most folks are or were in a similar position with their investing and savings activities.  We thought we were doing the right things.  Turns out it was only most of the right things.  We were putting lots of money aside into our 401(k) and IRA plans, taking advantage of tax rules in our favor, spreading our money out among five, seven, nine different mutual funds, and well, keeping debt “in check”.

Unfortunately, just keeping debt in check isn’t the whole answer.  If we’re not prepared for a financial downturn with emergency funds, the debt situation can sneak up and cause lots of problems with our personal cash flow.  Many folks are experiencing this right now – and lots of formerly “in check” debt is coming dangerously close to getting way out of check.

Additionally, the idea of diversification needs to be better understood and applied.  Just because you’ve spread out your money among umpteen different funds, it won’t help a bit if all of those funds are subject to negative impact by the same economic factors.  To be properly diversified, a portfolio should include components that are not in any way related to one another – so that when an economic downturn affects the US domestic equity market, only that portion of our portfolio that is invested there is impacted.

The remainder of our portfolio, properly diversified into asset classes such as real estate, foreign and domestic bonds, foreign equity markets, commodities and the like, will have reacted differently to the negative impact in the domestic equity market and the overall effect is lessened dramatically.

Granted, even the best diversification strategy would not have kept you from experiencing paper losses during the economic downturn we experienced in the fall of 2008 – but your overall result would have been much better than most folks saw, and you would be much closer to “whole” at this stage. Frustrating?  You bet.  Futile?  Of course not – we just need to continue to do ALL the right things.

One last parallel with my health situation to our financial situations – continuous monitoring and adjusting is necessary, as is patience.  As I mentioned before, I need to check my blood glucose level regularly and make adjustments to my diet and such to help ensure that I’m staying within manageable levels.  Oftentimes it gets frustrating because I believe I’ve done all the right things and my level is still off.  Then I’ll realize that maybe I didn’t exercise quite as much that particular day or perhaps I ate something I shouldn’t have.  No matter, it’s passed by, the only thing that can be done is to resolve to do it right for the next day.

This is what we’ve got to do, now, in our financial lives.  Continue doing all of the right things we were doing before, and make those changes and adjustments that we need to make (diversify appropriately, eliminate debt, have emergency funds, don’t buy more than you can really afford – of anything), and monitor the outcome.  And be patient.  Too many folks nearing retirement are looking at their account balances and figuring now is the time to make aggressive investment choices in order to “catch up”.  There is another way to catch up, a much more assured way:  put more money into a properly-diversified portfolio.  Work a little longer than you expected.  It’s not fun, it’s not what you had in mind, but it’s necessary for you to be able to face retirement with a healthy source of income.

If you have additional ideas on this subject, I’d be happy to hear from you – leave a comment!

I can learn from you, you can learn from me - please leave your comments and links!

Jim Blankenship, CFP®, EA, is an expert in personal retirement, IRAs, and tax issues, with more than 20 years of experience in the industry.  . Read more from this author