With geopolitical tension, inflation, cryptocurrency, rising interest rates, and market volatility all in the headlines lately, we hear the same question from clients every day.
“What is going to happen?”
It is a fair question, and one that takes many different shapes and sizes, too.
“What is inflation going to be next year? What do you see happening with Ukraine and Russia? China? Albania?” (Okay, Albania is a stretch.)
“Are markets going to fall soon?” “What will this administration do next?”
“Is bitcoin going to bounce back? Is Tesla stock a great choice? Is buying gold going to pan out this year?” (Yes, my punny jokes have come alive since becoming a dad.)
In some ways, the questions are flattering. People think I am a political pundit, universal company insider, seer, and (accurate) financial analyst as well as a financial planner.
It calls to mind the glorious job of the weatherman or weatherwoman of the eighties. Faced with an incredibly complex problem–the weather–their predictions were only slightly educated guesses, and frequently they were foiled as clouds dumped rain unexpectedly, temperatures shot past the “high” for the day, and storms swept past their targeted cities entirely. People angrily cursed the weather prognosticators, sending hate mail when meteorologists interrupted TV programming for tornadoes that never landed. Yet they still tuned in, expecting their local weather personality to have the answers.
Fortunately, today’s staggering technological advances have improved meteorologists' predictions. Though they still have plenty of angry Tweets and complaints hurled their way, their forecasts are dramatically better. What used to be a county-wide tornado warning with 0-3 minutes of notice is now a quarter mile warning with 15 minutes of notice.
Unfortunately, In the world of finance that is not the case. Studies show the financial experts who “call it right” about major market events tend to be wrong most of the time. There are still too many uncertainties and variables to reliably answer many of the questions we are asked. Technology has made predictions tougher rather than easier in the financial world. If anything, technology has enabled swifter changes in markets.
That said, there are things I can say with reasonable confidence. Owning stock tends to generate excellent returns for the patient, well-diversified investor. The market will temporarily go down. Things happen we cannot possibly predict. Many great companies will fade away as others take their place. Professional money managers, on average, fail to outperform the market. Selling when the market is down is the worst time to sell.
What does this mean for clients?
Let’s start with the Serenity Prayer. Recognize what you can control. Recognize what you can’t. Recognize the difference between those two. Act accordingly.
We can control our own behavior. We can decide not to constantly stare at our accounts. We can turn off the news (especially the entertainment shows that masquerade as news) and occupy our minds with something better. We can decide to save more or less. We can optimize our taxes, our pension payouts, and our Social Security. We can make sure our estate plan is set up properly. We can manage our risk with the right types and amounts of insurance. We can use the best kinds of accounts for each of our goals, and take money from those accounts in a smart way. We can spend time focusing on what truly matters to us.
Some of these behaviors come naturally–others require a more deliberate kind of focus. These are the aspects of our financial lives we can control. They are also the domains where we as advisors can more consistently be of help, rather than trying to be the Weather-Or-Not channels of old, throwing darts in the dark.
*Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Past performance is no guarantee of future results. Talk to your financial advisor before making any investing decisions.