Over the past decade, there’s been an explosion in the quantity of information available to help you decide where to invest your money. On TV and radio, in newspapers and magazines, in financial reports and on the Internet – prognosticators everywhere are all rushing to recommend seemingly contradictory options.
But consider this radical notion: what if no one really knew what was going to happen next?
What if no forecaster could ever predict which way interest rates would move; no mutual-fund manager had any idea what sector you should invest in; no pundit could ever accurately assess what the xxxx xxxs are doing; and no newspaper story about “hot stocks” was worth the paper it was printed on?
From my point of view, this “what if” scenario is not just 100% true – it’s also really good news for investors. That may sound strange, but think about it: acknowledging this fact relieves everyone of the enormous burden of having to navigate the constant avalanche of market data out there.
There’s no point in worrying about whether your portfolio will be up or down next week, for the simple reason that you can’t do anything about it anyway. For the last hundred years, the vast majority of market research indicates that nobody really has any idea what the market is going to do tomorrow.
Not convinced? Well, just consider what would happen if the conventional wisdom were actually true. Imagine that there really were a few select people, somewhere in the world, who could reliably and consistently predict the market, outperforming all trends and competition.
Where might you expect to find these investing superstars? In any business, people who are best at what they do are usually the biggest fish in the pond. Well, in the investment world, the biggest fish are the huge pension funds that control hundreds of billions of dollars. The money managers of these funds collect millions of dollars in fees every year. So if anyone could reliably beat the markets, surely that’s what they’d be doing, right?
The results of the top pension funds in the United States, relative to a “passive” investing strategy of just buying the S&P 500 index and a bond index suggest that the smartest people in the game have a tough time beating the market. Even before their fees are factored in, 90% of the world’s top pension managers still under-perform their benchmark – year after year! Even the few that do rise above the market indices can’t do it consistently; they change practically each year.
So if even these top experts can’t accurately predict when to get in and when to get out, why are so many ordinary investors still trying to do it? The truth is, there are some things that simply can’t be predicted.
Now for the good news: once you’re able to ignore the media barrage about what’s going to happen tomorrow, you can focus your time and attention where it can do most good: on the things you can control. You can start work today on achieving your long-term financial goals as effectively as possible.
Alan MacDonald is an investment advisor with Richardson GMP Limited. Alan helps investors with over $500,000. of assets make smart decisions about money. He is the co-author of “The Copperjar System, Your Blueprint for Financial Fitness” available on Amazon.
All material by Alan MacDonald. Alan MacDonald is an Investment Advisor at Richardson GMP Limited. The opinions expressed in this article are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP or its affiliates.
Richardson GMP Limited, Member Canadian Investor Protection Fund.
Richardson is a trade-mark of James Richardson & Sons, Limited. GMP is a registered trade-mark of GMP Securities L.P. Both used under license by Richardson GMP Limited.