When planning a vacation or new adventure, you most likely will do some research, create a plan and even those “non-planners”, usually have some type of map. The same is true of your financial future. To get where you want to be, you should have a financial roadmap.
That map should provide the picture of how your financial pieces fit together and provide options when roadblocks occur. This series is designed to discuss “the pieces”.
Embrace the market.
As a trader, many try to beat the market by taking advantage of stock information that might change the price of a stock or predict its future. This approach is usually futile and more than likely will prove costly.
We live in a world where information is instantaneously available. It is almost impossible to get information, that no one else has already seen. That is also true of the markets. By the time you read new information about a company, more than likely, it has already been reflected into the market price. This is an important concept, and it will affect how you look at the market.
According to the Credit Suisse Global Investment Returns Yearbook 2018 produced with data from the London Business School, over the past 118 years an investment in premium vino generated an average annual return of 3.7%—better than gold, real estate, art or even stamps. The one asset class that wine couldn’t beat: stocks. From Dec. 31, 1899, through Dec. 31, 2017, the authors calculate, a basket of global equities from 23 countries returned 5.2% annually. U.S. stocks alone performed even better: 6.5% per year. (Fortune Magazine, May 2018 issue)
Diversify broadly.
“The global market is large and nearly half of the investment opportunities in global equities lie outside the US. Non-US stock, including developed and emerging markets, account for 48% of the world market cap and represent more than 10,000 companies in over 40 countries. A portfolio investing solely within the US would not be exposed to the performance of those markets.
Over long periods of time, investors can benefit from consistent exposure in their portfolios to both U.S. and non‑U.S. equities. While both asset classes offer the potential to earn positive expected returns in the long term, they may perform quite differently over shorter cycles. While the performance of different countries and asset classes will vary over time, there is no reliable evidence that performance can be predicted in advance. An approach to equity investing that uses the global opportunity set available to investors can provide both diversification benefits as well as potentially higher expected returns.”
Dimensional Fund Advisors, March 2016.
Focus on what you can control.
Concentrate your energy on the things in life that you can control: savings, retirement date, personal spending, asset allocation, reducing fees and taxes and applying discipline. And, try to put the things you can’t control, like Washington D.C. or geopolitical tensions, inflation or interest rates in perspective.
“Greatness is not a function of circumstance. Greatness, it turns out, is largely a matter of conscious choice.” ― James C. Collins, Good to Great
Tune out the noise.
With all of today’s media and 24/7 access to the markets, it is difficult to filter important and relevant information from trivia. In next month’s issue, we will examine how to do that and why it is important.
