Proactive Investing Vs. Reactive Investing

There are different styles and strategies investors may follow when investing. These style-driven approaches can change over time due to personal and economic experiences, such as our recent recession. Some of these strategies include quantitative influences, qualitative influences, aggressive to conservative investing, and short- and long-term investing. These are just among a few different ways to approach investing in our economic world. However, each of these styles can be directed by either being proactive or reactive.

Taking a proactive approach to investing encourages investors to actively plan, and — as much as possible — anticipate change and take control of situations, rather than only adjusting to change. Of course, this isn’t easy, but often it can be very beneficial to investors. Being proactive also requires discipline, objective thinking, responsibility and strategy. Whereas, a reactive style brings out emotions and may allow investors to be overly influenced by the media when making decisions. If not careful, this can be unsettling for investors.

Like any concept, there are pros and cons; however, in this case, I believe that a proactive approach is much better than being reactive. Mistakes can’t be completely avoided, but may be reduced. Unlike a proactive approach, reactive approaches can get confusing as to when to make decisions and to what degree. Also, when an investor is reactive, his or her decisions can change in a short period of time — then change again and again. At this point, decisions may become based on media information and not the investor’s ideas.

We can’t plan for everything. Many events are out of our control. Having a reasonable balance of proactive investing behavior with some degree of reactive decisions can be beneficial to making investment decisions. For example, a well-thought-out plan can take a wrong turn due to external factors, such as losing a job, medical issues or a divorce. At this point, an investor may become a reactive investor and may need to make some serious decisions about his or her investments or retirement plan. This is normal and will occur occasionally, but it’s important to revert back to being proactive at some point when working toward one’s financial goals.

Financial planning is challenging and has many variables to consider, so it is important to review your plan on a regular basis. Also, it may help to work with a financial professional.