The presidential primaries are running at full steam. There appears more controversy during this election than any time I can remember.
The candidates are making more and more promises. ‘I will do this and it will make your life better.’ ‘I promise to change this to make your life better.’ And on and on.
Unfortunately the media covers all the smear campaigns as well. If a candidate made a mistake in the past watch out!!
Most of the information out there is very confusing to the voters. Is Donald Trump for real? Can he fulfill his promises?
I am not sure if he can. There is no way to predict. They all say they will change things. Sadly, they don’t say whether the change will be better or worse.
Regardless of the outcome the capital markets will go on. The free markets do work if we let them.
When dealing with investors I also have heard a number of questions. The most frequently asked is; what will the market do next? Every one of them believes someone knows what will happen next.
Investors are in constant search of the ‘expert’ that will give them the answers and ‘beat’ the market.
Unfortunately, there are no answers to the question; what will happen next? While investors are searching for the right answer they lose money unnecessarily.
This is evidenced by the Dalbar research study which looks at individual investor performance over a rolling 30 year period. The latest study revealed that the 30 years ending December 31, 2014 average annual performance of the S&P500 earned 11.16% while the individual investor earned an average of 3.79%.
Why the difference? It can partially be explained by the investors search for the ‘best’ manager. This is called track record investing and it doesn’t work.
The invisible hand of the market sets prices more efficiently than any other process known to man. Is it perfect? Indeed, No. There is no perfect price; only what a willing buyer and seller negotiate.
The market instantly incorporates the collective mind of every market participants. Markets work. Unfortunately, most investors never tap their real power.
Remember Wall Street, including insurance companies are good at selling fear. My question is if the equity markets went down and stayed down. Would insurance companies survive? Or would they go bankrupt?
If they did not survive it would mean investors took the risk and the insurance companies earned the reward.
Stop listening to the fear mongers. Stop trying to beat the market and let the market forces work for you.
This will be accomplished by owning equities….globally diversify….rebalance. These 3 simple rules will lead to a successful investing experience.