LITTLE KNOW INVESTING SECRETS: Part 2-PREDICTIONS ARE USUALLY WRONG
“Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window.”
It doesn’t get any clearer than that! The only one I know who can reliably predict the future is Patricia Arquette, the lead actress in the TV show Medium. Unfortunately for me, she is not a real medium, but an actor!
I can’t tell you how many predictions I receive for the annual performance of stocks, bonds, TIPs (Treasury Inflation-Protected Securities), or the dollar. I used to read those predictions religiously, because, of course, I thought they would give me a leg up on the competition. After all, I’m sure I was the only portfolio manager reading them (or at least one of thousands of portfolio managers)!
Then I had an epiphany, if Warren Buffet says that he doesn’t worry about the future direction of the market, and I know I’m not smarter than he is, then why should I. NOW, I save myself some time. When I see a prediction headline, I RUN as fast as I can. And save my attention for something that is REALLY important.
Investing is NEVER about tweaking your investments to follow the current trends. There is a lot of evidence that frequent trading actually leads to LOWER INVESTMENT RETURNS.
Investing Success is Very Simple
Start EARLY, or NOW (if it’s not early)
Contribute to your investment account(s) regularly
Invest according to your ability to handle volatility (RISK)
Get on with your life
Forget about predictions for the future. Start by contributing to your tax deferred retirement account at work (401K or 403B). Put in as much money as you possibly can. For now, put half into a broad world index fund and the other half into a broad bond index fund; get ideas here. Don’t worry; you can always adjust the amounts later. Just get started NOW.
Investments go up and down. As long as you are patient and can leave your investment dollars in place 10 years or more, it is likely you will have more money than you started with.
|Take a look at Sarah:|
From ages 25 to 35 she invested $2,000 per year in a world stock index fund.
That’s a total of $20,000
Then she stopped investing.
When she reached 65 she had $439,000 from an initial investment of $20,000
During those 40 years, her investment went up and down, but she sat tight and reinvested her dividends. At the end of 40 years, she calculated that her annual return was 9%/year, just like the 100 year historical return for the stock market.
Just so you don’t sue me, let me state that “PAST PERFORMANCE IS NO GUARANTEE OF FUTURE PERFORMANCE.”
But I can guarantee that if you don’t invest anything NOW, you definitely won’t have anything saved for your future!
Next time you hear a prediction about the future, be sure and ask yourself how the pundit knows what the future will hold!
Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it for all of your personal finance goals, thoughts, activities, and plans.
Go to your benefits department at work and ask to speak with someone about the retirement investments. If they offer Vanguard or TIAA-CREF, start there, since those companies are non-profit!
Read up on Index Funds here.