Emotions Override Statistics…

When you read a daily financial publication like the Wall Street Journal you find an enormous amount of facts. These facts can lead to vastly different conclusions. I wager that each day, with the exception of 2008-9, I can find 5 reasons the market will go up and 5 reasons it will go down. All of these ‘facts’ occur in the same day.

You can justify almost any imprudent investment decision with “facts.”  Information is filtered by our emotions to create “fact” that support our decisions or beliefs. Without outside guidance, it is impossible to tell when and how this happens. Truth is the field of investing is elusive.

Remember the Wall Street bullies make money when we, the public, move money from one investment to another. Your broker has a vested interest in moving your money. They make more commission each time you move. The banking system loves to feed the fear.

If you are really interested in earning a good return on your investment dollars stop empowering the Wall Street bullies. Develop a sound, prudent portfolio, based on YOUR risk tolerance level and remain disciplined to that strategy. Jumping from one investment to another will cost you money and make tons of money for Wall Street.

As I have mentioned a number of times, NO ONE can predict the future. When you ask your broker what is the best stock for now? Or, when should I get in and out of the market? Or, who is the best fund manager(s)?  You are essentially asking them to predict the future.

A globally diversified portfolio eliminates the need to predict and allows you to relax and be assured you are properly invested to reach your long term goals. One of the main attributes investors need as well as advisers is discipline.

Many investors make the mistake of being in stocks or out of stocks. There is no in between for these ‘investors’. The truth is the answer is somewhere in between.

When a new investor in their 20s begins, their portfolio is 95% equities and 5% fixed income. As we age our portfolio needs to take on less risk. For example, for someone in their 50s and 60s a portfolio of 60% equities and 40% fixed income might be appropriate. For someone in their 70s 50% equities and 50% fixed income or even 40% equities and 60% fixed income might work.

To be specific your fixed income allocation should be high quality short duration. This adds stability to your portfolio.

The real answer is to maintain your purchasing power and provide reasonable growth you need equities in your portfolio. The level of risk you maintain is up to you and your spending habits.

Equities are one of the greatest wealth creation tools available, if properly used. To reach you long term financial goals own equities…..globally diversify….rebalance.

Leave a Reply

Your email address will not be published.