Doing All The Right Things

I am diabetic.

Photo credit: jb

This is one of those situations we’re dealt 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 away from sweets, 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?  Not completely – 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 have been in a similar position with their investing and savings activities.  We thought we were doing the right things.  Turns out it was only some of the right things.  We are putting 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, saving and investing while 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.  Lots of folks who work for the federal government experienced this problem recently. Lots of formerly “in check” debt is coming dangerously close to getting 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 the same economic factors correlated in their reaction to changes.  To be properly diversified, a portfolio should include components that are not in any way related to one another. With this diversification, when an economic downturn affects the US domestic large-cap equity market, only that portion of our portfolio that is invested in large-caps 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 other sized companies, will have reacted differently to the negative impact in the domestic large-cap 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 late in 2018. Your overall result would have been much better than most folks (with concentrated positions) 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, and 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!