My life has been thousands of planning iterations. It started with planning around sports in grade school and evolved into planning wartime operations in the Middle East. Fast forward to the present, and I am helping families plan for what’s important to them. Planning is in my DNA, and I rarely do anything without a plan.
When it comes to investing, following a plan can create the fear of missing out (FOMO). Let me explain. Ninety percent of my investable net worth follows my investment policy statement (IPS). It sets forth how much risk I’m comfortable taking, my goals, my time horizon, the asset allocation, and returns I can reasonably expect.
The IPS does a few things for me.
1. It removes emotions. On March 23,2020, when the S&P 500 was down 33.2 percent in 16 days, I did not deviate from my plan. War taught me that you could remove emotional decisions with proper planning. When the inevitable that you planned for happens, you don’t panic. You remove the emotion and execute the plan. That’s what I did in March.
2. The IPS gives me some flexibility. Core and explore is a strategy I’ve implemented. Ninety percent of my money is in my core holding. I allocate the other ten percent towards more speculative investments. If the speculative investments end up being more than a ten percent allocation, I’ll trim the holding(s) and add the cash to my core holdings.
While I give myself some wiggle room for ‘fun’ investing, I’d be lying if I said I didn’t have FOMO in 2020. Tesla was up 720%. NIO was up 1,210%. Let’s not forget Moderna, up almost 450%. For some perspective, the S&P 500’s total return over the last decade is 266%.
Those are just a few names that made headlines. I had FOMO. I still have FOMO. But I’m not willing to speculate with more than the amount my rationale brain put in place before the melt-up of 2020. Discipline equals freedom. The discipline to stick to the IPS gives me the freedom to not worry about daily, monthly, or annual market performance.
It’s okay to take a portion of your money and invest in companies you want to own. It’s also okay if you’re not interested in the core and explore approach. The bottom line is no matter what you decide, have a plan, follow it, and do your best to remove the emotions from your investment decisions.