Are our markets insane? Especially if you pay too much attention to everyday headlines, it certainly can feel like it, leaving you to wonder if there is any sensible way to participate in the markets — or why you may want to, to begin with.
The good news is that the markets aren’t as crazy as they seem. Investing in them is like grinding sausage. Close-up the process looks messy, with no rhyme or reason. But viewed from a more comfortable distance, you can glimpse a higher purpose.
At their essence, markets represent the proceeds of capitalism: Human enterprise applying capital to produce real things — goods and services — which generate earnings, dividends and more capital.
But which company stocks, industry sectors or sovereign debts are going to shine or disappoint next? The academic evidence has clearly and repeatedly demonstrated that the overwhelming majority of those who seek to accurately make these kinds of granular calls generally spend more in taxes, costs and effort than they can hope to consistently overcome. In contrast, those who simply expose themselves to the long-term forces of market nature (in relation to their tolerance for market risk), can expect to capture the market’s overall upward growth.
But enigmatically, most financial advisors devote a great deal of energy trying to predict the unpredictable. Tune into the daily news, and you’ll see any number of gurus and amateurs alike seeking to:
1. Pick individual stocks that they think are about to soar and sell the ones that seem headed for a breakdown.
2. Time the markets in general (or components within them) in an effort to pursue predictions of upcoming gains or imminent losses.
In lieu of engaging in these sorts of expensive and too-often frustrating pursuits of “crystal ball” strategies, we recommend that you focus on factors that are more clearly within your control: minimizing costs and managing market risk/ reward in accordance with your personal goals.
One of the reasons these factors are so important to your investment experience is because, unlike more typical, hyperactive strategies, you actually have some control over them. YOU decide to favor low-cost investments and minimize cost-generating trades. YOU decide to eliminate individual security risk through diversification, and to purchase investments that expose you to more or less market risk and expected reward.
YOU choose your personal goals. On these points, you can — and should — call the shots to your own benefit.
The sum goal is to form wealth by having the patience to see the process through. Patience isn’t always easy, but it can have an enormous impact on your investment experience. It’s the equivalent of swimming with, rather than against the vast current of our global markets.
Contact the wealth management specialists at AlignMYWealth at 800.401.6477.