This year I spent a wonderful, week-long Fourth of July vacation in Provincetown, Mass. The sculpted sand dunes were really something, and the sculpted abs weren’t so bad either.
As always, once people heard I was a financial planner, they asked about the future of the stock market. I have no doubt that some of them were hoping for some hot insider stock tip to cash in for a quick buck or minimize the roller coaster ride we’ve been on recently with the constant barrage of catastrophes in the news. Yeah Brexit, I’m talkin’ to you. (For more on Brexit, see Why the Brexit is Such a Big Deal for the World.)
I recently did three news segments in 24 hours right after the Brexit vote. No surprise there, whenever the market tanks, some news channel calls me for an on-air analysis.
I could easily tout some fabulous sounding as-seen-on-TV sound bite that might catapult my reputation as a genius investment guru. But I usually resist because I don’t want to demean what it really means to have a financial plan with smart financial decisions based on that plan. Your fiscal forecast should be based on your own situation, dreams, hopes and goals, not some crazy prognostication of the magical future of the stock market. (For related reading, see How to Combat the Lure of 'Free' Financial Advice.)
Playing the Long Game
Call me a tortoise if you want. I strongly believe that smart investing over the long term is a great way to potentially achieve financial independence for a lifetime. On the other hand, if you like to live fast like the hare from Aesop’s fable, attempting to predict the market or react ahead of every piece of world news, you may end up drowning in fees and taxes––that is, if you end up making anything. Plus, watching the 24-hour news cycle nonstop will likely give you a heart attack.
Here are my biggest reasons for declining to call the stock market future:
1. I hate losing mine or anyone else’s money
I rue the day that someone calls to say my “cocktail party tip” cost them money. Sure, Stock X doubled in the last three weeks, but who knows what will happen in the future? The bigger the run up in value, the bigger the chance of a big drop. While the "easy come" pops the champagne corks, it’s the "easy go" that doesn’t go down so easily.
2. Forecasting distracts from smart financial planning decisions
The point of a comprehensive financial plan is to create a road map that leads to your financial goals over a period of time. You may have a target goal for a specific average return that will keep your financial plan running smoothly, but getting caught up in short term market fluctuations or other gibberish can really take the focus off the important steps you must take to reach a secure financial future.
If you want to reach your goals and be able to sleep at night, a sound financial plan is the best way to go. But if you always pressure yourself to pick the absolute top performing investment over every period of 82 days, 7.4 months, or 10.83 years, you will never be happy no matter how wonderful your returns actually are.
3. There is no one-size-fits-all perfect investment
No single financial plan, account type or portfolio is right for everyone. The perfect investment just doesn’t exist. Furthermore, the best investment products for your retirement may well differ from the best ones for your house down payment or your kids’ college accounts. (For related reading, see Finding Your Investment Comfort Zone.)
4. I can’t predict the future
I believe that a well-managed portfolio will be worth more in 10 years than it is today. Beyond that, I have no idea what it will do from day to day or month to month. As long as my portfolio is accruing enough money at a pace steady enough to reach my specific goals, short term guesses don’t really matter. To wit, it doesn’t take a crystal ball to see that many people’s “plans” are wishful thinking and have a big fat zero percent chance of getting them to their financial goals.
5) Stock market predictions frequently fail
Even a broken clock is right twice a day. I’ve seen so-called “experts” throw out stock tips left and right. While some of them wind up being right, just as many turn to be out wrong, and the end results usually aren’t great. In my book, it seems so much easier just to sit back and relax with a nicely allocated portfolio appropriate to your specific situation and time frames. Why take on extra stress for worse results?
I also hear a lot of, “So and so predicted the 2008 financial crisis, so he’s probably right about this tip.” Oh really? Let’s deconstruct, shall we? First, how come he’s still broke? Secondly, did you not see "The Big Short?" Even if you got that game-changing tip, and believed in it, very few people would have the fortitude of Christian Bales’ character (based on the real Dr. Michael Burry) to stick with it when the sky is falling.
Thirdly, many people call every crisis. The catch is that they don’t always call it at the right time. I’m 100% sure the stock market will go down at some point in the future, just as I’m also 100% sure it will go up at some point in the future (just as everyone can be 100% sure that we’re all going to die in the––hopefully far––future). Such predictions do not a market guru make. I have no idea what the market will do today, tomorrow or whenever. Historically, there are more up days than down days. Either way, none of this really has very much to do with the chances of you reaching your financial goals or achieving financial independence in the long run.
The Bottom Line
I’m here to help my clients set up a roadmap to their financial goals. A major part of that is helping them stick to their well-developed financial plans. Simply relieving your life of financial stress and being on track for your own hopes, dreams and life goals beats losing your shirt on a dumb stock tip any day. And that, my friends, is something you can take to the bank.
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Additional advisory services offered through Trilogy Capital, a Registered Investment Adviser. Trilogy Capital, Trilogy Financial and NPC are separate and unrelated companies. FinancialPlannerLA.com