Monday, December 22, 2014

Every time the market tumbles, people ask the SAME question

Every time the market tumbles, people ask the SAME question

On a fairly regular basis I get questions from folks – about financial planning, of course – either via the “Ask Your Question” portal on our website or through face-to-face interactions. Speaking of which, every once in a while such an interaction involves a total stranger walking up to me because they recognize me from one of the area magazines for which I write columns. I must mention that I find those moments to be refreshingly rewarding, not that I’m seeking them out.

This past week I stopped by a local coffee shop to grab my must-have chai latte. Out of nowhere, a woman walked up to me and asked if I was who she thought I was – the investment advisor guy in the magazine? After exchanging a few pleasantries, she got to the financial question of the day: What in the world is going on with the stock market? Look at what the DOW (Dow Jones Industrial Average) is doing – is this a sign of the next crash? Should I get out now?

That’s a fairly familiar line of questioning anytime things aren’t headed up, up, up with the stock market. And I understand folks’ desire to know exactly what the deal is, especially given that the past week or so has been pretty chaotic with the DOW sliding by 732 points. It was at 17,801 on December 9. A week later, on December 16, it was down to 17,069. Of course, as of last Friday, the DOW was back to 17,804 - My coffeehouse encounter happened prior to that.

Here was my response to her and, for that matter, to anyone with a similar question:

I don’t know what’s going to happen tomorrow. Never have and never will. And the same goes for every single financial advisor or expert you see in the media. Yes, no one knows exactly what’s going to happen.

And here’s the simple proof to back up my point: to date in the history of this planet, no one has been able to consistently and successfully predict the market’s exact path, beyond what everyone already knows – or more appropriately, must know by now – that sometimes the market goes up and sometimes it goes down. Period! And period again!

You may be wondering, but what about all these smart looking, eloquent folks you see on TV or hear about on the radio? They can’t predict the future either. I think what a lot of us tend to do is confuse someone telling you what has already happened in hindsight as forward–looking, but they are two completely different things. What most of these so-called media experts are doing doesn’t require any special powers, so to speak. There’s a reason we refer to that as Monday Morning quarterbacking.

So here’s the point I’m trying to get across. Don’t waste your emotions on the direction of the stock market, my dear friend, because the markets are going to do whatever they are meant to do. That doesn’t, however, mean to even suggest that you should simply buy a couple stocks or mutual funds and just forget about the rest.

There is such thing as a scientifically proven means to properly diversifying your investments so that you can capture market returns without needing to speculate and trying to do the impossible task of predicting (or worse, letting someone else fool you by telling you that they can predict) market movements.

I’d recommend that you work with someone who can help you to build an efficiently diversified portfolio with a volatility that you can live with. And then go about your daily life.
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