Every week I talk with investors about how they invest their money. While listening to many I can hear the influence of the Wall Street bullies by the questions they ask.
The Wall Street bullies have an ongoing marketing campaign to convince investors that they have the answer to investing success.
These bullies have trained you to ask the following questions:
- What stocks or investments do you like? These bullies need you to believe that there is some investment advisor who can consistently and predictably add value to your portfolio by exercising “superior skill” in individual stock selection.
- Who are the best fund managers? In other words track record investing is finding the funds or managers that did well in the past is a reliable method of indicating which funds will do well in the future.
- When should I get into and out of the market? Market timing is any attempt to alter or change the mix of assets in a portfolio based on a prediction or forecast about the future.
When investors ask these questions what they are really asking for is a prediction about how our investments will do in the future.
All studies done on the success of these strategies have indicated that they do not work.
You cannot predict the future because the markets are random and unpredictable.
Rather than trying to predict what the markets will do next investors would be better served by developing a prudent portfolio and remain disciplined.
The questions we should ask are something like:
- What is your portfolio’s expected return?
- What is your portfolio’s expected volatility?
- Have you defined your investment philosophy?
- How do you measure diversification in your portfolio?
An investor coach can help you answer these and other relevant questions.
Remember you are investing to reach a long term financial goal. This goal cannot be achieved if you continuously change strategies. Or try to get in and out of the market at the right time.
These tactics very seldom lead to success in the short term. Over the long term you will not reach your financial goals because they rely on ‘luck’ and not ‘skill’.
Most pension funds are managed to control risk through proper diversification. Why shouldn’t you?
The fundamentals of successful long term investing involve:
- Own equities
- Globally diversify
It is more about controlling your emotions during both down AND up markets. Controlling your emotions cannot not be done alone.