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Advantages of a Diversified Portfolio Directed by Personal Goals

Life pulls us in many directions with obligations and opportunities, including many ways to spend our money. Even high-income earners can be challenged to save and invest month after month. To top that, in times of market volatility or economic uncertainty, fear can stop us from seizing the moment.

As anyone who has built a prosperous business or a significant portfolio will tell you, wealth is not developed in short spurts or by random luck (usually). Real wealth is a process of consistent action over time. The dedication to long-term goals or positive behavior habits delivers the most remarkable results.

Ask your questions about goals-driven diversification. Brown | Miller offers peace of mind through attentive portfolio diversification and wealth management.

If you are either frightened by market uncertainty or lack consistent investing discipline, two powerful tools can help overcome these pitfalls. Plus, when they work together, your chances of long-term success increase. 

Harness the dual power of:

  • A diversified portfolio
  • Measurable long-term goals connected to your values

 

The Benefits of a Diversified Portfolio

If you cook, you know that mixing consistent proportions of the same ingredients in the same fashion provides identical dishes every time. Investment markets are not like that. You may have remarkable success investing one way for a while, but results change based on domestic and global circumstances, markets, and economic movement.

A diversified investment portfolio benefits include minimizing risk while maximizing potential returns. Spreading out risk and selecting investments that thrive in different market conditions are vital goals of diversification.

Diversification helps reduce your risk and smooth out the ups and downs of the market. A diversified portfolio is spread across several asset classes that behave differently under different market conditions. It positions you to benefit from various investments under various economic circumstances.

 

Advantages of Well-Defined Long-Term Goals

Basing your investment decisions on long-term goals rather than on short-term market fluctuations provides several advantages as an investor. One of the most obvious is the discipline to stick to your plan and resist the temptation to make impulsive decisions based on short-term market movements. 

Since most investment wealth is built over time with ongoing involvement in the market, this single advantage is crucial. However, there are several other benefits to investing based on meaningful long-term goals.

Long-Term Goals Give Purpose to Your Investments

Life is filled with choices. Whatever you want to do, buy, learn, or experience, you can choose from thousands of options. Investing is no different; this can create challenges for investors tempted to chase the new, shiny, or next popular trend. 

Long-term goals give purpose to your investments. They help you and your investment advisor align your risk tolerance and each investment with where you are going and what matters to you. 

With clear goals in mind, it’s much simpler to identify the most likely investments to help you achieve them. This focus enables you to avoid common and potentially costly mistakes in your investment portfolio.

More Time Invested Equals More Time for Interest to Compound

Long-term goals help you stay invested, giving compounding interest more time to help you build wealth. The longer you remain invested, the more you benefit from compounding’s exponential effects. 

When you know you’re investing to reach a specific goal on the horizon, you have more opportunities to reinvest your profits—reinvesting your returns rather than cashing them in further increases your profit potential.

Goals Support the Portfolio Review and Rebalancing Process

When your investments link to financial and personal goals, you have a clear direction in the portfolio review and rebalancing process. Your goals also inform the appropriate asset allocation strategy.

For example, when you approach a long-term goal like retirement, you will likely want to shift from a pure asset-building approach to a retirement income planning approach. This adaptability protects your gains and ensures you have the resources you need when you need them.

Well-Defined Goals Help Avoid Emotional Investment Choices

Human emotions guide decisions. In the investment world, they tend to hinder more than help. 

Market volatility can undermine even experienced investors, causing irrational decisions based on greed or fear instead of data and logic. When investors sell prematurely based on emotions, they lock in their losses, cut short the compounding process, and make themselves vulnerable to poor market timing.

Knowing why you are investing helps you stay emotionally disciplined in challenging markets. 

As a financial planner in the Washington D.C. area, this improved focus is an important reason we use a goal-based investment plan. It helps our clients navigate harsh market conditions and avoid making costly mistakes. 

Long-term goals mitigate the potential for lost opportunities caused by selling at the wrong time and keep you invested for the good days. 

 

Staying Invested Improves Long-Term Returns

Historically and with a long-term view, stocks outperform almost all other assets classes, and the S&P 500 is difficult to beat. Long-term investors experience a much higher rate of success. By committing yourself to a well-diversified investment strategy aligned with meaningful goals, you improve the likelihood of maximizing your long-term returns.

Setting and working towards well-defined, long-term goals improves your life and powerfully supports your financial well-being. If you’re looking to build wealth or improve your financial discipline, Brown | Miller Wealth Management will help you define meaningful long-term goals and align your portfolio plan. 

You may be astonished at just how much of a difference this makes. Let’s chat today!

Our advisory firm is dedicated to serving families and high-net-worth individuals in the D.C. area. Our team provides comprehensive financial advice so you can enjoy an enriched retirement. Make sure you align with our core principles to get started.

Schedule a free, no-obligation appointment to discuss your financial goals.

 

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Disclaimer: This article is intended for informational purposes only, and not to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs, and investment time horizon. This report is for general informational purposes only and is not intended to predict or guarantee the future performance of any individual security, market sector, or the markets generally.

The information provided in this article represents the opinions of Brown Miller Wealth Management (“BMWM”) and is expressed as of the date hereof and is subject to change. BMWM assumes no obligation to update or otherwise revise our opinions or this article. The observations and views expressed herein may be changed by BMWM at any time without notice. The information may be based on third-party information, which is deemed reliable, but its accuracy and completeness cannot be guaranteed.

BMWM provides links for your convenience to websites produced by other providers or industry-related material. Accessing websites through links directs you away from our website. BMWM is not responsible for errors or omissions in the material on third-party websites and does not necessarily approve of or endorse the information provided. Users who gain access to third-party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from the use of those websites.

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Author: Christopher W. Brown, CFP®, CIMA®

Christopher W. Brown is the Founder and Managing Principal at Brown | Miller Wealth Management.

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