This post was originally published on this site
Imagine approaching investing with no set amount of money to place in the market, no goals for the future and no strategy. That seems crazy, right? Now apply that same idea to the holiday shopping spree that many of us embark on this time of year.
The truth is, many shoppers are hitting the stores this season with no set budget (only 43% of Americans have one), no shopping list and no strategic approach. The results can have a huge financial impact. By approaching holiday shopping with the same discipline that investment professionals and investors approach constructing a portfolio, you can maximize your holiday experience while minimizing the impact to your wallet.
No. 1: Think long-term
When investing for a long-term goal, such as retirement, it’s crucial to have a strategy in place. That way, instead of making knee-jerk reactions when the market wobbles, investors and advisers can make appropriate shifts based on personal circumstances, accounting for short-term requirements without sacrificing long-term goals. It can feel tempting to forgo that strategy to jump on the hottest investment trend that’s hitting the headlines, but ultimately, every investment opportunity should be evaluated with the end goal in mind.
The same is true for gifting. It’s easy to get distracted while shopping by the flashiest display for the season’s hottest gift but evaluating whether your present will maintain that value after December can help you purchase gifts with deeper meaning and a longer shelf life. Think about purchasing gifts that are timeless — such as a classic coat or watch that can be used for years to come.
Another avenue to consider? The gift of experience. Research from the University of Toronto found that despite the fact that 78% of people purchase material gifts for the holidays, giving the gift of an experience is more powerful for strengthening the relationship between giver and recipient. Just make sure that your gift of experience falls within your budget, so that you can avoid a holiday spending hangover.
When you take the time to find a gift with long-term value, both you and the gift recipient will reap the benefits — similar to the satisfaction and peace of mind you experience when building an investment plan with a long-term mind-set.
No. 2: Don’t let emotions impact your strategy
Emotions are a natural symptom of investing. After all, you’re placing your money into a market that experiences unexpected swings that can have a serious impact on your life savings. Trying to time the market is difficult for most people because we’re wired to seek immediate results, and those instincts can lead us to making rash, emotional decisions that throw investments off course. The reality is, there will always be good and bad times in the market, and keeping your emotions in check is an essential step for a successful investment strategy. Working with a fiduciary financial adviser can help you to mitigate some of the emotions that come with human nature and keep your strategy on track during stressful times.
Similarly, there are many emotions involved with the holiday season. The stress of finding the perfect gift can feel like a roller coaster, which leads you to making rash buying decisions, like jumping on a flash sale just because the markdown is significant. This can lead to overspending, with six in 10 people feeling pressure to overspend this holiday season.
Having a plan ahead of time, such as an outline of who you are shopping for, what you’d like to purchase, and how much money you plan to spend on each gift, can help mitigate impulsive decisions. You could also consider assigning yourself a “gifting adviser” who can serve as your voice of reason when hitting the stores. Just like a financial adviser, a neutral third party can help you determine whether your spending is within reason and whether or not your purchase is going to hold its value.
No. 3: Minimize gifting ‘risk’
One way that investment professionals mitigate risk in a portfolio is through proper diversification. Diversification helps ensure that you have the right mix of investments across different asset classes (such as equities, fixed income and alternatives) to meet your goals, and that one investment can’t negatively impact your portfolio too severely.
However, when it comes to giving, diversification won’t net the same results as it can with investing. Too often we try to give a gift to everyone on our nice list — family, friends, colleagues, kids’ teachers and beyond — and in turn spread ourselves too thin in terms of spending. This year, minimize your diversification and dedicate your holiday spend to those that matter most. By reserving your funds for a select few, you can be more personal and strategic when it comes to your shopping and ultimately have a better spending experience.
Approaching your shopping as you would approach your portfolio isn’t meant to make you feel like Scrooge. Instead, it can help you maximize the way that you shop to make this season the best one to date, without sacrificing your own financial health in the process.
It’s important to remember that while the holiday season is a special time of the year, the spending decisions you make now will follow you into the new year, so holding yourself accountable now will be a gift to yourself in the long-run.
Lacey Cobb is a portfolio manager and CFP at Personal Capital.
