What to Do With New Year's Predictions
The "great" Wall Street houses having rolled out their New Year's predictions, we sit with them now surrounding us: stocks, bonds, interest rates, currencies, precious metals and more. It's like being at a picnic lunch where the blanket is spread, items have been taken out of the basket, and we're about to decide what to eat first.
But what's this? We're not going to partake of this bounty? No, I'm afraid not. It seems the chef who provided our vittles hasn't lived up to his reputation. Just the first sniff of those delicate appetizers signals something's not right. It doesn't pass the smell test. So stop right there. Go no farther with this. Wrap it all up and deposit it in the nearest receptacle.
And thus we consider the prognostications of Wall Street's finest. After all, most of these prognosticators represent what are essentially sales organizations (as we've explained on more than one occasion, for example here and here). Applying our reason and common sense to all this blathering, we understand the motivation of the salesman (or woman) to be simply this: to make the sale. It's not to provide guidance, special insight, an edge up on the next investor, or anything other than the obvious intent of the sales representative working in the best interests of his or her employer. Get this firmly implanted in your brain and you will have started this Year of Our Lord 2016 on the right foot.
Oh, and did we mention that the vast majority of such predictions turn out to be wrong?
With that in mind, now freed from the compulsion to know what Goldman Sachs, Morgan Stanley, Citigroup, JP Morgan, Bank of America, Well Fargo, and all the rest have to say about the economy and the financial markets, take all that time you have on your hands now and think about what's important to you. Are you looking to preserve what you have, or make it grow? Maybe a little of each? Do you need to take income this year from your investments? If so, how will you construct your portfolio to accomplish this? Do you understand the nature of the risks you're taking however your investments are configured? Most importantly: Have you configured your portfolio(s) such that the chances of taking a big loss are minimized as much as possible given your investment goals?
But wait, one more equally important question: Do you have money set aside for emergencies? Commonly referred to in financial planning circles as an "Emergency Fund," we find it one of the least attended to items on that important checklist you should keep as you look over where your money sits to begin the New Year. You want to be sure to have enough in reserve to weather any storm, and that storm should include the volatility of financial market wherein you've invested your surplus.
Notice we say "surplus," because it is indeed that surplus of funds that you consider investing, i.e., those beyond your current needs, and those urgent needs that pop up from time to time as a result life's inevitable misfortunes. You should only invest money you won't need to touch for a while (10 years? 20 year? 30 years? It depends.) Without adequate reserves, you'll likely hit a speed bump on the road to prosperity time and again, as this or that unexpected expense blindsides you, or volatility causes you to fret over losses to principle given the ups and downs that are so characteristic of financial markets. With this in mind, you may want enough in your Emergency Fund such that you not only can handle any conceivable upset to your apple cart, but also enough such that you can sleep at night, no matter what's happening in the markets. An old expression advises us to "sell down to your sleeping level." It means if you find yourself fretting as you watch principle diminish during this or that financial storm, sell down to the point where your stop fretting and can simply watch the fireworks in a calm, unaffected manner.
Put simply, emotional decisions are the bane of the aspiring successful investor.
Frankly, if all you've done in 2016 is be sure your emergency reserves are adequately funded and see to it that your investments are configured such that you can likely minimize the chance of a big loss, you'll likely fare far better than most investors our there.
With that in mind we wish you good luck as well as a
But what's this? We're not going to partake of this bounty? No, I'm afraid not. It seems the chef who provided our vittles hasn't lived up to his reputation. Just the first sniff of those delicate appetizers signals something's not right. It doesn't pass the smell test. So stop right there. Go no farther with this. Wrap it all up and deposit it in the nearest receptacle.
And thus we consider the prognostications of Wall Street's finest. After all, most of these prognosticators represent what are essentially sales organizations (as we've explained on more than one occasion, for example here and here). Applying our reason and common sense to all this blathering, we understand the motivation of the salesman (or woman) to be simply this: to make the sale. It's not to provide guidance, special insight, an edge up on the next investor, or anything other than the obvious intent of the sales representative working in the best interests of his or her employer. Get this firmly implanted in your brain and you will have started this Year of Our Lord 2016 on the right foot.
Oh, and did we mention that the vast majority of such predictions turn out to be wrong?
With that in mind, now freed from the compulsion to know what Goldman Sachs, Morgan Stanley, Citigroup, JP Morgan, Bank of America, Well Fargo, and all the rest have to say about the economy and the financial markets, take all that time you have on your hands now and think about what's important to you. Are you looking to preserve what you have, or make it grow? Maybe a little of each? Do you need to take income this year from your investments? If so, how will you construct your portfolio to accomplish this? Do you understand the nature of the risks you're taking however your investments are configured? Most importantly: Have you configured your portfolio(s) such that the chances of taking a big loss are minimized as much as possible given your investment goals?
But wait, one more equally important question: Do you have money set aside for emergencies? Commonly referred to in financial planning circles as an "Emergency Fund," we find it one of the least attended to items on that important checklist you should keep as you look over where your money sits to begin the New Year. You want to be sure to have enough in reserve to weather any storm, and that storm should include the volatility of financial market wherein you've invested your surplus.
Notice we say "surplus," because it is indeed that surplus of funds that you consider investing, i.e., those beyond your current needs, and those urgent needs that pop up from time to time as a result life's inevitable misfortunes. You should only invest money you won't need to touch for a while (10 years? 20 year? 30 years? It depends.) Without adequate reserves, you'll likely hit a speed bump on the road to prosperity time and again, as this or that unexpected expense blindsides you, or volatility causes you to fret over losses to principle given the ups and downs that are so characteristic of financial markets. With this in mind, you may want enough in your Emergency Fund such that you not only can handle any conceivable upset to your apple cart, but also enough such that you can sleep at night, no matter what's happening in the markets. An old expression advises us to "sell down to your sleeping level." It means if you find yourself fretting as you watch principle diminish during this or that financial storm, sell down to the point where your stop fretting and can simply watch the fireworks in a calm, unaffected manner.
Put simply, emotional decisions are the bane of the aspiring successful investor.
Frankly, if all you've done in 2016 is be sure your emergency reserves are adequately funded and see to it that your investments are configured such that you can likely minimize the chance of a big loss, you'll likely fare far better than most investors our there.
With that in mind we wish you good luck as well as a
Happy, Healthy, and Prosperous New Year!
Comments