Recently, I was excited to attend an investor meetup – remotely, of course. (Aren’t Zoom meetings great?)
I was looking forward to socializing and talking nerdy money stuff with friends. Alas, after the excitement wore off, I left the discussion slightly disappointed.
Here’s why: To clarify, this was a mostly amateur investor club. But, these individuals are — on average — more sophisticated and knowledgeable than some financial advisors I’ve met. That’s because this group understands the importance of low-cost investing and – for the most part – staying the course through the various ups and downs of the stock market.
The most recent meeting was decidedly different. (And, given the circumstances with the coronavirus pandemic and it’s effect on global stocks markets, it’s completely understandable.) Here’s why the meeting felt different: the comments and questions at this meeting were in stark contrast to the confidence this group usually portrays. The discussion was dominated by feelings and potential future events; there was a lot of interest in how members think stuff will turn out – rather than looking at numbers and data.
They were particularly interested in a prediction that the S&P 500 would drop to 2,550 and how the coming presidential election will impact the market. I was shocked and disappointed that so much weight and interest revolved around speculation and the unknowable future.
Why did this disappoint me so much?
No One Can Predict the Future
More academic studies than I can count list the hilarious, repeated failures of those that predict the direction of the stock market. You likely also cannot predict the direction of the bond market.
Despite how interesting it can be to listen to these prophecies, no one should put real money on them. These prophecies, although entertaining, are nonsense. Any form of stock market fortune-telling should be for entertainment purposes only.
No one knows what is going to happen. It doesn’t matter how many books one has written or the amount of air time they receive on CNBC. (One could even argue that the more air time someone has on CNBC, the less credible they are.) In short, it’s simply impossible to successfully predict the future; you can’t do it. Truly successful investors understand this.
You Can’t Predict the Stock Market
Don’t believe me? Then tell me next week’s lottery numbers. Predicting which stocks will zig or zag – and when – will be just as accurate as your lottery number guess.
That’s what made me sad about this recent investor meeting. My friends understood the theory of staying the course. But, when times got a little choppy, they became vulnerable to the chatter.
Have a Plan that Will Always Work
Since you don’t know what’s going to happen, what do you do? How does one even live in an unpredictable world?
It’s the same thing you do with (hopefully) everything in your life:
Create a plan that will always work, regardless of what life — or the stock market — throws at you.
In financial planning, being prepared is everything. It means:
- Live below your means
- Save money regularly to create a rainy day fund
- Build a plan and invest according to your risk tolerance
- Stay the course during stock market fluctuations
- Enjoy your life while your money creates wealth
In investing, having a plan that will always work requires the knowledge of how much risk you can take. From there, you create the right investment mix for yourself based on your risk tolerance. Then, all that’s left for you to do is set it and forget it.
With your well-thought-out plan in place – a plan that will work regardless of what happens – you know that you’re going to be OK.