Most of us spend too much time trying to outguess the market and not enough thinking about our long-term financial future. This tendency by investors is referred to as “inverse law of attention”. The less important something is to their long-term financial results, the more attention they pay to it. And the more important it is, the less care they give it. I can’t tell you how many times a casual conversation leads to: “Blake, what do you think about Bitcoin? Legalized Marijuana stocks are presenting me the chance of a lifetime, right? What do you think about investing in Tesla?” My response is always the same, “the investments are the easy part to creating and growing wealth”.
For every hour someone spends trying to guess which investments will earn a big return, they’ve probably spent less than a minute thinking about investment taxes. Or, which kinds of accounts should be holding which kinds of investments. Which accounts should be funded more aggressively than other accounts. What’s the plan within five years of retirement look like. How much time do you have, what are your habits towards each dollar you make and spend, family dependents (children, grandchildren, parents, grandparents), budget, income, insurance needs, age, desired quality of life while saving and during retirement years, etc.
I’ve studied the financial markets for more than 25 years. I’ve gotten to know thousands of people who ask about stock-market investing. I’ve heard countless horror stories. I’ve also watched the late-night, get-rich –quick infomercials and read books with the secret that someone wants to share with the rest of us out of the greatness of their heart. For a small book fee, plus shipping and handling, of course. I’ve looked at hedge funds, private equity deals, timing systems and algorithms, proprietary software programs, rolling stocks, options, – you name it. I continue to read white papers written by scholars regarding re-balancing, portfolio management, market timing, asset allocation etc. I’m quite confident that I’ve explored much of the available scientific data to try to produce for my clients a better rate of return at an equal or lower risk.
What I’ve concluded? That you need to start with a strategy that gives you the means as well as the discipline and/or courage to hold your long-term investment for years. First, find ongoing short and intermediate-term investments that will provide years of inflation indexed income for your daily spending needs. Rising interest rates and inflation are always a headwind to spending power and the reason I don’t like bonds at this point in the cycle. Once those income needs are handled, you can afford to allow your long-term investments, such as real estate, to grow unhampered by the market’s ups and downs.
If you buy quality, well-diversified investments, keep your trading fees and taxes low, and hold for the long term, statistics suggest that you have a reasonable degree of assurance (although not a guarantee) that an amount invested in the broad stock market today should buy at least the same good and services 20+ years from now as long as that investment is left untouched, and dividends and capital gains are reinvested in other investments.
According to Ibbotson Associates, there has never bene a 15-year period when an investment in the broad stock market, as measured by the S&P 500 index, produced a negative return. So, plan on investing for a minimum of 15 to 25 years. This buy-and-hold advice may be contrary to your instincts. It’s also the main reason the large investment firms were not a good fit for my company’s philosophy and more importantly our clients’ returns. Most of us want to move money around when things aren’t going our way. And contrary to much of the advice that we receive, solicited or not, it’s a loser’s game to predict with reasonable accuracy when to be in or out of the market. “It only works, until it doesn’t”.
You can’t simply pick any couple of stocks, etf’s, mutual funds, bonds, etc. and succeed. We believe strongly in direct investment ownership. In other words, own the rental property, own the stock directly, or own the bond directly. Not as part of a group, pooled investments, or fund. Do your homework or have someone help you understand why decisions are made with your money. Service is important but it IS ALL ABOUT PERFORMANCE.
Following a strict discipline of what and when to buy as well as when and how much to sell an investment is very important. Emotions and feelings are not an investment strategy. Neither is buying Bitcoin to catch up for lost time in saving aggressively toward retirement. Golfers benefit greatly from caddies all around the world to help them navigate their emotions before making calculated decisions. B P Financial Associates believe investors need help to stay the course as well.
Blake Parrish, CFP®
Senior VP, Portfolio Manager
Phone: (503) 619-7237
E-mail: [email protected]
Certified Financial Planner Boardof Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.”