An investment advisor is in the business of helping clients and their families build wealth over long-time horizons. The reason to own equities for the decades to come should be the conviction that the values of common stocks may significantly benefit from both the pace of scientific and technological discovery, and also the global capitalist revolution. Certainly, the volatility of the stock markets has caused some concerns. But if you combine the long view of progress with a multigenerational investment horizon, you may find yourself relieved of the necessity of knowing what the markets do in the short term.
Following is some advice to help prudent investors enjoy freedom, security and peace of mind:
Have a plan, and stay focused on what really matters. If you don’t know where you are going, then don’t be surprised if you end up somewhere you didn’t expect. Remember this story:
When Alice came to the fork in the road, she asked the Cheshire cat, “Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the cat.
“I don’t much care where,” said Alice.
“Then it doesn’t matter which way you go,” said the cat.
If you require your portfolio assets to last you and your family two, three or more decades, then keep a long-term perspective. One major personality trait separates the “haves” from the “have-nots” – the ability to defer gratification. The wealthy tend to be long-term thinkers, to seek help in clarifying what they really hope to achieve in life, and to make steady progress towards those goals. And if your question is, “Can the U.S. economy survive an 86 percent drop in stock prices and 27 percent unemployment rate?” – it not only can, but it did in 1929-1932. Whatever happens in the stock market over the next 30, 90, or 365 days may matter little generations from now.
Diversify. Whoever claims to know with certainty what the highest-performing investment is going to be for the next 12 months is either a fool, or Alan Greenspan’s wife. All markets do not always move in the same direction or at the same tempo, yet they tend to move upward over time. That’s why quality, discipline and especially diversification matter. By not putting all your eggs in one basket, you help to smooth out the ups and downs of the markets, which may allow prudent investors enjoy better peace of mind.
Don’t underestimate the power of will. Whatever the apocalypse-du-jour is, we have survived. In 1798, Thomas Malthus foresaw “a gigantic, inevitable famine” in his conclusion that population growth was exponential, while “the power of the earth to provide subsistence” finite. What Malthus failed to grasp was that it is not the earth, but man, who produces food. He underestimated the power of human ingenuity – a key factor that has driven down the real cost of food and increased production. Most pessimists are Malthusians in that they extrapolate the problem, whatever it may be, in a straight line, but hold the solution (e.g. human ingenuity and will) constant. Humankind in general, and Americans in particular, are always best in a crisis.
It always looks like the wrong time to invest in equities – but long term, it’s always the right time to invest. Many people focus on the first point – prudent investors focus on the latter. Short term, the markets hate uncertainty, and that creates insecurity. But periods of uncertainty may also offer great opportunity. If you wait until the uncertainty is clearly gone, the opportunity passes as well. In other words, long-term security is purchased at the price of short-term insecurity. The more insecurity you accept on the front end of your investment lifetime, the more real security you and your family may enjoy on the back end.
Don’t be confused by “the noise.” We are blessed (or cursed) by a plethora of financial news. With so much data, it’s little wonder investors are confused. The investment media, whether it be the cheerleaders on the financial news networks or writers of sensationalized headlines, can often be more of a hindrance than a help. Remember, they are in business to help their organizations achieve their financial goals – to maximize sales and audience. Mind you, we get some really great “stuff” from our network of clients, advisors and resources. But it is the higher cognitive functions – knowledge, wisdom and insight – gained from data and information that are most important in making wise decisions that will improve your quality of life.
Finally, dream big and stay focused on what really matters in life.
