When Investing for Peace of Mind, Always Consider the Sum of All Outcomes.

During conversations with investors and financial professionals I hear of the hot advisor who beat the market. They made money throughout the ‘great recession’. They are a Chartered Financial Analyst CFA or some other designation that ‘proves’ their ability to beat the market. They have the system to make money in futures, options, gold, real estate and/or other alternative investments.

Recently while talking with another adviser. He told me since we are not affiliated with a broker/dealer we are not tied to institutional money managers. He stated he had developed a stock picking model of his own that average 19%+ over the last 10 years. What I did not tell him was there are a number of actively traded mutual funds that have average 19%+ over the last 10 years.

What he does not realize is that there is no correlation of past performance to future results.

Many times I hear that their friends’ broker beat the market. Therefore, everyone should move their money to this ‘hot’ broker. Unfortunately, when the ‘hot’ streak ends and it will, investors are devastated.

My studies of investing strategies over the last twenty years. I have come to  the conclusion that trading strategies work until they don’t. When they stop working it gets real ugly real fast.

Just because someone else got lucky doesn’t mean you will.  If we offered you a million dollars to play Russian roulette with a gun containing one bullet and five empty chambers, you would be a fool to ignore the chance of blowing your brains out.

Every day in the world of investing, someone takes a foolish gamble, gets lucky, and wins big.  When investing, you must always consider the sum of all probable outcomes, including the bullet in the chamber.

IF you are saving for a long term goal, like retirement or college for your kids or anything that is important to you follow a formal strategy.  You should follow a strategy which is backed by academic research. This research should use at least 60 years or more of data to eliminate any chance of bias.

You cannot substitute a high risk strategy for a prudent portfolio with a disciplined savings plan.

To succeed in reaching your long term financial goals you should, buy equities……globally diversify….rebalance.

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