5 steps to keep your eyes on the prize

My big concern is that the mixed messages from economists and politicians will distract us from setting a long term investment strategy and sticking to it.

Five steps can help us stay focused on personal goals.

Jot down your assets and liabilities

Hopefully your net wealth (assets less liabilities) has grown in recent years. Increasing your net wealth is obviously a good thing, but be careful about the unrealised growth in the value of your assets.  This can disappear just as quickly as it came.

If, for example, your home has grown in value by $80,000 but you’ve taken on an extra $60,000 in debt, you could argue that you are $20,000 better off. Be careful though. You have $80,000 in unrealised gains, which can disappear, but the $60,000 in debts won’t.

Analyse your cashflow

Take care about running a deficit budget and covering the hole with credit card debt, personal loans and buy now, pay later. Running deficit budgets doesn’t work for governments and it won’t work for you either.

Set up a disciplined investment plan

Don’t try to time the market. It’s a mug’s game. As the old saying goes, it’s time in the market – not timing, that counts.

Diversify

Holding just a couple of blue chip stocks is no longer a logical strategy in a time of dramatic change. Some household name companies of the past have been overrun by rapid change – remember Kodak or Blockbuster Video?

Diversifying your portfolio across hundreds of Australian and international shares has never been easier thanks to exchange traded funds and low cost brokerage.

Stick to your plan

Don’t let the volatility that looks set to continue through 2022 distract you from your longer term goals. Focus on what you can control – how you manage your money.

The one constant – the ageing of our population, continues at a cracking pace. And about the only thing I can guarantee in the future is that unless you’ve got a healthy pool of investments to draw on when you choose to, or are forced to, stop work, the quality of your lifestyle could dive as rapidly as the UK pound. But unlike the pound,  your lifestyle won’t recover.    

Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.