Market forecasts. Political predictions. The direction of interest rates. The future price of oil and gasoline.
It is generally in your financial best interest to be very skeptical of most predictions. Frequently, you are best not to follow the “conventional wisdom,” which are the thoughts and opinions of experts in a field.
One of the key factors which differentiates our firm from many other financial advisors and brokerage firms is that we do not make or follow predictions in developing our investment recommendations.
Can you predict the future? We cannot. Neither can Warren Buffett.
Can we review your financial condition, learn about your goals and concerns, and then develop an appropriate financial plan for you? Yes. And we do not need the ability to predict the future to provide you with solid financial planning.
Did most market forecasters or energy experts predict the tremendous drop in oil prices over the past few years, from $100 a barrel to around $30 per barrel? No.
In 2008-09, the conventional wisdom then was that interest rates would be much higher by now. At the same time, many forecast that the actions of the Federal Reserve would cause runaway inflation. How accurate were these predictions? Would you have benefited from following them?
Today, interest rates are still nearly at the levels of 2008-09 and the inflation rate is barely at 2%. There have been no signs of double digit inflation since 2009. Following these inflation and interest rate predictions would have led to poor fixed income investment results. We follow a policy of investing in very high quality fixed income investments, of varying maturities, so you benefit over the long-run, regardless of whether interest rates go up or down.
Most investors have portfolios that are heavily weighted in large cap growth stocks or mutual funds. These are generally considered to be the most rewarding investments and best place to invest in stocks. This would be the conventional wisdom and what we normally see when we evaluate the investments of prospects to our firm.
However, there is significant academic data which shows that over the long run, investing in small and value companies is more financially rewarding than investing primarily in large and growth companies. While there are years or periods in which holding smaller or value companies is not as advantageous, time has repeatedly shown that being patient and adhering to this strategy has been financially rewarding.
Sometimes not following conventional wisdom can be difficult. However, having an investment strategy that is well thought out, disciplined, consistent and evidenced-based is usually better than relying on predictions and guesses.
What is best for you and your family?