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Try to resist temptation to guess stock market performance

Try to resist temptation to guess stock market performance

January 1, 2015

Businessman holding a glass ballAttempting to mix your long-term financial plan with your guess about where the stock market is headed over the short-term is a bad idea; but not all advisors agree.

In the world of investment advisors there are two segments. An overwhelming majority believes there are ways to predict how the stock market will perform.

Part of that advisor’s “value added” to clients is to share this information with them in the combined effort to earn a good return on investment.

The other smaller segment of advisors do not believe there are available indicators that can be used repeatedly to correctly predict the stock market performance during the short-term.

Both opposing and separate camps of advisors come with graphs and charts in hand to support their case. They all make a convincing argument.

From the client’s perspective is it clear. Yes, as clear as mud.

Could you ever imagine having a detailed conversation with your medical doctor about an illness where the doctor pulled out proof plus research reports to support their professional opinion? Patients nor investors have the training to understand the implications of these facts and figures.

A part of the challenge is the client. Most, if not virtually all clients think there must be a way to predict future market behaviour. Many advisor’s readily offer their opinion. For many, that is their role. Companies also spend millions of dollars advertising how smart and successful they are.

Over the years I have heard stories of conversations in airplanes when the person next to you finds out you are in the investment business. Their question is always about some market prediction.

For those who do not believe market predictions can be made, the conversation can revolve around why that is true. After politely listening to the reasons why predicting is not logical, the same question is repeated. People want to hear a prediction.

That has been my own experience. People want your opinion on what will happen next; particularly during times of market volatility,

This is similar to the ongoing chatter on sports radio. Will the Leafs win their next game? Lots of opinions, lots of noise. In the end it is just a guess.

Same as in the investment world, it is just a guess. Sports, however, is entertainment and investment decisions affect your life.

Our past articles we have written in the Oakville Beaver have clearly stated we are in the minority and do not believe that short- term market performance can be successfully predicted. You can guess but it is just a guess.

That brings us back to the beginning of this column. Do not try to combine your long- term financial plan with market predictions.

Author and American certified financial planner Carl Richards wrote an article in The New York Times July 1, 2013. His advice was simple.

“Instead of relying on guesses to dictate our financial decisions, we need to focus on the investing basics.”

“Figure out where your are today, make a guess about where you want to go, buy diversified, low- cost investments that have the best shot at getting you there and behave for a long time.”

His final comment “behave for a long time” acknowledges that human behaviour when investing can often be harmful to achieving good investing results. Humans believe they can “win” at investing and that is why they always ask for predictions from investment advisors.

By all means have a formal long-term financial plan. Please resist the temptation to guess what the market will do over the coming months and invest wisely for the long-term.