Rather than participating in all of the speculative hype so prevalent on Wall Street, your money manager should help you focus on what you can control and make sure you are aware of what you cannot control.
“NO” is the answer I give most frequently to those who ask me investment questions.
Should I buy Google if it goes below $400? NO
Should I load up on health care sector stocks because of the aging population? NO
Should I buy more emerging market or small company stocks because they tend to do better after a recession? NO
The list goes on.
If you really take apart these questions you’ll realize that two things are always true. One, the question is usually motivated by some fact the investor heard recently, so its based on some kind of past data. Two, and more importantly, the question is asking the investment manager to speculate about the future.
Put a different way the questions that are really being asked are:
Will the price of Google “live” above $400 and will it go their quickly? answer: “who knows?”
Will the health care sector outperform technology, small companies, foreign companies, manufacturing, etc?? answer: how does anybody know that with any certainty? boomers need cars too.
Will emerging markets out perform other asset classes in the near term? answer: “they might.”
Who would risk their $1,000,000 retirement account on the speculative answers to the above questions?
Only those who are okay with gambling and speculating with their assets.
Focus on what you can control.
1. Don’t make any changes based on predictions about the future or allow anyone at any level in your investments to do so. This is called market timing and over time you will lose money doing it. True statement: Not one money manager has ever made money by market timing for more than a 15-year period. An think about it: even if a money manager could tell the future, why would they tell you?
2. Do not put your future returns in the hands of a few companies. If your portfolio owns fewer than 300 companies per asset class, then you are not fully exposed to the market. The fluctuations of single companies or sectors could be very negative for you. This is called stock picking, and active money managers do it all the time with costly results.
3. Never use a manager’s track record to determine whether or not your investments are safe going forward. In this case, their own small print will even tell you that their past performance is not an indicator of future results. By law they have to tell you that. The legislators got this one right. Managers never repeat. Ever. I defy you to find me one that has.
Remember, you are an investor for life. You cannot rely on flash-in-the-pan investment strategies that have only a few years of results on which to base their conclusions.
The following is an non-exhaustive list of a few things we do for you, our client. It is proven and inexpensive.
1. We own over 12000 companies in 11 asset classes of stocks. You are exposed to the market. We get market returns.
2. We never make moves in your portfolio based on predictions about the future. We DO re-balance regularly to keep you in a predetermined tolerance of risk / short term uncertainty.
3. We never buy or sell a stock in your portfolio unless it falls out of line with our reason for owning it. A small company becomes a midcap for example, then we sell. Our turnover is VERY low. Your costs are very low as a result. We also block trade as a technique that often gains return in the very purchase of the assets.
4. We educate, coach, and counsel regularly to make sure that our investors are more and more at ease with the truth about investing and more able to achieve their investment objectives.
The stock market has returned over 12% to the long term aggressive investor and near 10% for the those who are more conservative. These are huge gains over inflation. Make sure you don’t do ANYTHING that will keep you from getting and keeping all of that return.
So, contrary to what many managers want you to believe, returns are given by the market, not by managers. And losses relative to market returns are ALWAYS preventable.