The anxiety caused by both a volatile stock market and an existential threat to our health transcends anything most of us have experienced. Our stress would be greatly alleviated if only we could find answers to very basic questions, like:
- When will there be an effective treatment for Covid-19?
- What about a vaccine?
- When will my life return to “normal”?
- Where’s the market headed?
It’s very frustrating when we turn to “experts” and they can’t provide answers.
We’re one of those experts.
An important limitation
Thinking we know more than we do is called “illusory superiority.” For financial advisors, it can be particularly dangerous.
Of course, we wish we knew the direction of the market. If we did, we could remove uncertainty and alleviate stress for our clients.
Here’s the problem. The future direction of the market will be driven by tomorrow’s unexpected news. No one can possibly predict that news.
For example, if a vaccine or effective treatment is announced much sooner than anticipated, the market is likely to react positively. But if a promising treatment fails in clinical trials, you can expect a negative reaction.
Because we understand our limitations, we don’t focus on factors we can’t control. That’s why our advice is to prepare an investment plan with a suitable asset allocation, globally diversify, keep costs and fees as low as possible, and defer or avoid taxes when possible.
The final piece of the puzzle is behavioral finance. It’s our job to prepare you in advance for sharp downturns in the market, provide perspective and demonstrate why investors who have stuck to their plan have historically earned higher returns than those who didn’t.
Emperors with no clothes
It’s sad that investors continue to rely on emperors with no clothes, who make predictions about random and unknowable events. Famed author and financial journalist Michael Lewis summed up the problem nicely in a post on Bloomberg.
Lewis noted that in order to succeed on Wall Street ...you must believe, or at least pretend to believe, that you are an expert in matters where no expertise is possible. I’m not sure it’s any easier to be a total fraud on Wall Street than in any other occupation, but on Wall Street you will be paid a lot more to forget your uneasy feelings.
Most investors have a high regard for Warren Buffett, yet many ignore his wise counsel about ignoring forecasters: "We have long felt that the only value of stock forecasters is to make fortune-tellers look good."
Relying on predictions is harmful to your emotional and financial health. Don’t succumb to the temptation to find certainty where it doesn’t exist.
IMPORTANT DISCLOSURE INFORMATION
The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized copying, reproducing, duplicating, or transmitting of this document are strictly prohibited. Open Window Financial Solutions, Ltd. accepts no responsibility for loss arising from the use of the information contained herein.
Please remember that past performance may not be indicative of future results.
Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Open Window Financial Solutions, Ltd. - “Open Window”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.
Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.
Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Open Window.
Please remember that if you are a Open Window client, it remains your responsibility to advise Open Window, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.
To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.
Open Window is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice.
A copy of Open Window’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request.
Please Note: Open Window does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Open Window’s web site or blog or incorporated herein, and takes no responsibility for any such content.
All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.