Care to guess the most frequent question I received from my clients after the election? You’re right! “What should we do?” Futures and markets were down overseas and in the U.S. However, it wasn’t long before a rebound took place and, when the dust had settled, the markets were looking pretty good.
If you’ve read any of my past blogs, you would know that I do not have all the answers when it comes to predicting which way the market is going to swing on any given day. My clients and prospective clients who listen to me should know I don’t even pretend to have the answer. This is the discouraging part. The encouraging part -- for me at least – is that no economist or forecasting guru has the answer. At least I don’t feel too stupid!
So how can we make investment decisions, given all that is happening in the news?
To that, my questions to you are as follows: Has your investment time horizon (such as your time until retirement) changed? Have your goals (such as education funding for your kids) changed? Has the amount you have available to save and invest changed? If not, the election (or anything happening in the 24-hour news cycle) in the large scope of a lifetime of saving and investing, has little relevance.
These kinds of concerns are driven to a large degree by media frenzy, and often times are completely irrelevant to long term financial goals. It feeds Warren Buffet’s old friends: fear and greed. Buffet has a plan and executes his plan. His plan takes advantage of other people’s fear (buy when things look bad) and greed (hold a little more cash when things look good).
In short, control what you can control: saving, spending, time horizon, goals, etc. and execute your plan. If you allow economic conditions and market movements to influence decisions, you will not be a successful investor.
Barron’s magazine annually updates a chart that compares actual indices performance such as the Dow Jones Industrial Average and S&P 500 with top strategist’s predictions. Check it out. It makes for real interesting reading and confirms the thesis of this blog.
John Kenneth Galbraith, the well know economist, once said: “The function of economic forecasting is to make astrology look respectable.”