- Research shows that even professional investors can’t reliably predict the market.
- The good news is that successful long-term investors don’t need to make heroic market calls or engage in frequent trading– something the financial media doesn’t want you to know.
- Select an asset allocation that’s appropriate for your personal financial goals. Implement that allocation with low-cost asset class investment solutions, manage your taxes and rebalance your portfolio to the target allocation.
A few mornings ago a CNBC headline really struck a chord with me: Why All the Correction Calls Have Been Wrong.
The story opens with this observation, “A lot of smart people have been calling for a market correction for an awfully long time. And all of them have been dead wrong”.
As I read the article, I asked myself, “Is this really a surprise?” The data on the ability of people to predict market moves has been clear for decades. The conclusion is always the same. Even professional investors can’t reliably predict the market. In short, they can’t see the future.
However, when you watch or read the financial press, you get the opposite idea. Most guests on CNBC are asked questions like, “Where is this market headed?” or “Which stocks are you buying now?”
After 30 years advising clients about wealth management issues, I am convinced that this is just the kind of story (financial reporting as entertainment) that is most damaging to investors who are trying to reach their long-term goals. It certainly doesn’t help their advisors, either.
Time and experience have shown that most investors are best served by taking steps like these:
- Select an asset allocation that is appropriate given your personal financial goals.
- Implement that allocation with low-cost asset class investment solutions.
- Manage your taxes and rebalance your portfolio to the target allocation as is practicable.
- Reevaluate your asset allocation if there are major changes in your life.
- Turn off the financial news channel.
The good news is that being a successful long-term investor doesn’t require making heroic market calls or engaging in frequent trading. This is something the financial media doesn’t want you to know because audience numbers, hence their advertising revenue, depends on you believing the opposite.
Feel free to contact me (610-695-8070) any time if you’re unsure about how your current asset allocation will hold up to near-term marketing conditions. We have plenty of additional information about this topic in the Free Resources section of our website, including this insightful article by our friend Weston Wellington of Dimensional Fund Advisors. Also check out our new white paper Wealth Preservation forAnesthesiologists. You don’t have to be a medical specialist to enjoy the section on market cycles.