As Yogi Berra taught us; “It’s tough to make predictions, especially about the future.” We are living through some tumultuous times. The world gorged on debt and times were good. Now we are paying the price for this excess and are in the midst of a painful worldwide de-leveraging process. Nobody knows how long this economic malaise will last. Should we be pessimistic or optimistic? Time will tell. Nonetheless, I feel strongly that betting against the progress of human history and innovation has always proven to be a losing proposition over the long run. Yes, in the short run, there are times to be cautious. The last five years confirm that. But circumstances change. Markets and economies are cyclical. Economic growth and positive investment returns follow contraction and investment losses just as day follows night.
So how do we invest in this crazy world and keep our sanity? There is really no secret or magic formula. Below are some fundamental guidelines for investing that I believe can guide you through any type of market. The information age we live in has made investing more complicated and confusing than ever. Individual investors are bombarded with an information overload on a daily basis. My advice is to turn down this “white noise” by doing the following:
Know and keep your objectives in place, only altering them when circumstances force a change. Consider adhering to my Five Tenets for Investing:
- Invest with a plan. Sounds basic enough but have a specific plan and time frame for your money.
- Diversify. Invest globally and maintain exposure to a variety of asset classes.
- Invest with a professional. Get some help. A professional can help you put a plan together to reach your goals and manage risk. More importantly, a professional cam help take the emotion out of investing by injecting some rational thinking and perspective. This is crucial during downturns.
- Invest continually. Up or down markets, keep reinvesting and adding to those accounts.
- Have patience. Probably the most important tenant of all. The biggest pitfall I see for investors of all ages is not sticking to their plan. Too often, investors change the direction of long-term plans by making short-term decisions based on emotion. Decide if you are an “investor” or a “trader.” Investing should only be undertaken with a long-term time horizon.
Damien helps individuals invest and manage risk. He is a Certified Financial Planner™ professional and a principal of Walnut Creek Wealth Management. These are the views of Damien Couture, CFP® and should not be construed as investment advice. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Additional risks are associated with international investing, such as currency fluctuations, political and economic stability and differences in accounting standards. Not all recommendations are suitable for all investors. Each investor must consider their own goals, time horizon and risk tolerance. Your comments are welcome. Damien can be reached at 925-280-1800 x101 or Damien@WalnutCreekWealth.com.