Thoughts on the Market
New year, new market? Maybe, maybe not. With last year's strong market performance globally, many investors are asking if it's time to get in or get out.
This week I was quoted in InvestmentNews on this very topic. Here's what I had to say:
"It seems that most clients are more anxious about the market than enthusiastic about it," said Abe Ringer, principal at Breakwater Financial. "My message is simple: Let's focus on what we can control, rather than what we cannot. We cannot control, predict, manage or influence the direction of the market. We can only stick to an allocation we can live with over many market cycles — in my practice, that also comes with a bias toward value — and focus on the elements of our personal financial lives that we actually can have an impact on."
I've always felt that often investors spend way too much time, energy, and stress trying to figure out where the market is going—when the truth is, no one can predict where the market is going in the short-term. This statement applies to individuals and major Wall Street banks alike. Consider the following predictions, made in December 2016, from five major Wall Street banks.
· Merrill Lynch, UBS, Goldman Sachs, and Credit Suisse all predicted that the S&P 500 would end 2017 at 2,300 representing about a 2% return
· JP Morgan was a bit more aggressive by predicting that the S&P 500 would end 2017 at 2,400, or an approximate 6% return
The actual return of the S&P 500 was north of 21% in 2017. And many parts of international markets did even better. For more evidence of just how far off predictions from Wall Street experts can be, check out this article by CNBC showing predictions since 2000, compared to the actual return.
Bottom line: it is impossible to control your investment returns by timing the market. No one has been able to do it consistently. Remember - when you try to time the market, you need to nail not just one impossible prediction, but also a second one. That is, you need to get out at the right time and back in at the right time.
A better strategy is to manage the elements of your personal financial life that you can impact. For example, making sure you have ample cash reserves for emergencies (and peace of mind), being mindful of your spending habits, selecting an asset allocation that you can hold over any market period, finally getting those estate planning documents done, maxing out savings to retirement plans, etc.
As always, please do not hesitate to contact us to discuss how this applies to your own personal financial plan.
Breakwater Financial, LLC is a registered investment advisor. The content of this blog post is for informational and educational purposes only and is not to be considered investment, legal or tax advice. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. If you have any questions regarding this blog post, please contact us.