What does our crystal ball show?

Blog post #403

This is a question that clients and prospects frequently ask.

They want our opinions, predictions and insights about the future.

They want to know what we think will happen to the stock market in the next few months or the next year.

They want to know what the financial implication will be of various political and economic matters, such as the trade war issue or what will happen if so and so is elected or not elected.

These are all valid questions.

However, our crystal ball is almost always cloudy and murky.

The reality is that like everyone else, we cannot accurately predict the future.

Unlike some other forecasters and market analysts, we accept the reality that we cannot accurately predict the future. Even though other investment professionals may do lots of research and analysis, they still cannot reliably predict the future.

What does this mean for you, as clients and prospects?

We want you to ask whatever questions that you may have. Even if we cannot predict the future….about the stock market, specific companies, interest rates or future political events, we try to provide insights or perspectives that may be helpful to you.

In other words, we want to understand the background or concerns that your questions may represent and address those issues with you. If you have concerns about the future, we should talk about it. Even without a clear crystal ball, these can be valuable and worthwhile conversations.

Accepting that we cannot predict the future is an important element of the investment philosophy that we adhere to.

This concept may be new for people who have not worked with us.  This may go against what people traditionally thought about their financial advisors and money managers. Ideally, you want to meet with an advisor who has all the answers and will be able to tell you when the markets will be going down, when they will rebound, which stocks will do best and which areas to avoid.

That sounds great, except that we should all realize that no one can accurately and consistently predict the future. Yes, there have been a few very successful money managers who have beaten the market over the long term, but they are hard to identify in advance.

If you think another investment manager/advisor/broker can predict the future, or do detailed analytical work and research to try to accurately predict which company stocks will do better than others over the long term, that is called “active management.” Active management generally costs more, but over the long term, active managers’ performance in all (or nearly all) asset classes have been below their respective benchmarks.

We believe it does not make sense to pay higher costs for investment managers to try to beat a benchmark, based on trying to predict the future, when tons of academic and financial data shows that most of these efforts are not successful. Why pay more and generally get less?

If the Federal Reserve members cannot consistently and accurately predict the future of interest rates, even 3-6 months in the future, let alone 1-2 years into the future, how do you expect an active bond manager to consistently be able to predict the future of interest rates?

It may sound contradictory, but accepting that we cannot predict the future can be a source of comfort for you and enable you to have greater confidence in us, as your financial advisor.

  • We are up front with you and tell you that we are investing your money based on financial and academic data, not based on predictions of what may do best.
  • We are not continually calling our clients with our latest and greatest ideas, and not frequently changing our mutual funds because they are underperforming.

We want you to understand why we invest in the manner that we do.

We want you to understand your asset allocation and be comfortable with it.

We want you to be comfortable with the amount of risk that you are taking.

We want you to know that we will answer your questions as clearly as we can, in English, not in technical jargon.

We want you to know that we will adjust your portfolio and your asset allocation for reasons generally specific to you, not based on what we think may occur in some region, company or election. Changes to your portfolio are generally based on changes in your personal financial situation, your age, your health and your need and willingness to take risk, with a focus on reaching and maintaining your financial goals and and desired lifestyle.

We want you to know that we will provide you with analysis and insights about the financial markets, tax and estate law changes, but we will not make investment decisions based on what we think may happen in the the future.

Our investment philosophy and strategy is logical and rationale. It can be successful for the long term. It can provide you with financial comfort and security.

We can provide you with advice, guidance, excellent personalized service and clarity.

However, we cannot provide you with a clear crystal ball.

If this makes sense to you, we would be pleased to talk with you.

If you are a client and you have friends or family who could benefit from our approach, we would be pleased to talk with them.

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