A Reminder of a Fundamental Truth about Investing

Late Sunday night I received an email from a consultant to financial advisors which included a sample letter in response to the terrorist attacks in Paris over the weekend, with the suggestion that many clients will be asking Monday morning about their investment implications and this letter could be a useful proactive communication.  I strongly believe in taking the long term view on investments, to the point that I tend to ignore short term, white noise 'news'.  But with this coming from a person I've followed for years and for whom I have a great deal of respect, I read his information closely.

Included in his letter were these paragraphs:

Today, you will see the world’s investment markets open lower, and probably close lower, as the horror of the events in Paris are translated into uncertainty about the world we live in—and, therefore, the safety of our assets, reflected in our stocks.  The markets always respond reflexively and negatively to threats to our safety.

But as the year proceeds through its last few weeks, the smart money always tells us that these downturns are temporary.  Fears that global enterprises are somehow worth less because blood was spilled overseas will prove to be overblown.  

Source:  Chicago Tribune

I decided to not send this or anything similar out, but wondered if I missed a great opportunity to make myself look smart by being in front of a bad day in the markets.  As the day unfolded, I was given another powerful reminder of a bedrock investment principle I have learned in my two decades in the financial business: No one can accurately predict the near future.

Yesterday the S&P 500 was up about 1.5%, with German and even French markets flat.  Hardly a negative response to the legitimate threat to our safety, and nothing like a fear of global businesses being worth less, despite widespread predictions from non-reactionary experts that the response would be exactly that. 

This has happened on a regular basis over the years.  Just when I think I have some insight into what is going to happen, the market makes an opposite and sometimes powerful move in the other direction.  Wall Street and mainstream media trains us to think that being able to forecast market moves are the key to financial success, and leaves us wanting to be able to predict the future.  The truth is that patient, disciplined investing is the only sure way to have a successful investment experience. 

The market looks poised to head north again today.  Maybe in the next few days or next week the markets will move downward, but it won't be because of a fundamental change due to the terrorist attacks. 

If market turmoil and headline news has you anxious about your investments or retirement readiness, we can help you separate the wheat from the chaff and help you have peace of mind about your financial future.