Economic and Investment Update from our September 2012 client webinar (Archived Blog)

Unfortunately, due to compliance rules, we are unable to provide a replay of the economic update this time.  Therefore, we are providing a summary of the webinar here.

Our guests were Jack Nicolson and Christopher Edgar, Regional Directors from Dimensional Fund Advisors (DFA), who were interviewed by Jim Johnson.

We started the conversation by asking Jack and Chris, “How is the current economic situation going to affect my investments?”

Focus on what you can control and not what you can’t control.

What you can’t control is picking winning stocks, timing the markets and what the financial press says.  Research has shown that consistently picking winning stocks to be all but impossible.  While someone occasionally seems to be able to do this, research shows that we can’t tell whether it was by luck or skill.  The same goes for timing the markets - that is - knowing when to get in and when to get out.  If one is worried about the current situation and gets out of the market, the challenge is to know when to get back in?  And the press makes money by getting you excited or upset.  When we are emotional we are less likely to make rational decisions. Steve Forbes, the publisher of Forbes Magazine said “You make more money selling advice that following it.  It’s one of the things we count on in the magazine business – along with the short memory of our readers.”

What can you control?  Again, research gives us guidelines.  Diversify your portfolio (asset allocation), rebalancing, keep an eye on costs and maintain discipline.  Diversification helps reduce uncertainly and control of risk. Rebalancing enforces the idea of sell high and buy low. Expenses reduce returns.  Maintain discipline – stay the course. Don’t succumb to the information noise from the media.

We next asked about the presidential election and how that might affect our investments? Jack and Chris provided information showing that the growth in the stock market have no correlation with which party is in charge.  (Look for another blog post focused on this subject.)

Finally we talked about the Euro zone and the mid-east situations. Again, we should focus on the things we can control. 

The conversation closed with a look at the “Lost Decade” for investors, from 2000 to2010.  While an investor in the US stock market lost money, investors with a diversified portfolio had a positive return. And, while the S&P 500 earned 7.8% over the 20 years from January 1992 thru December 2011, the average equity investor only earned 3.5% because individuals didn’t have the discipline to stay invested but tend to buy when things are going up and sell when they are going down.

The “takeaways” were to not worry about what you can’t control but rather focus on what you can – asset allocation/diversification expenses and discipline. 

Wise investing advice for now and for all times.

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