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Dan Solin

Dan Solin

Posted: March 15, 2011 07:14 PM

The Only Question That Matters for Investors


The financial media is whipped into a frenzy. There is so much uncertainty. Here's a summary of recent developments:

  • Bill Gross eliminated U.S. government debt from the Pimco's Total Return Fund.
  • Nouriel Roubini ("Dr. Doom") predicts $100 billion in municipal bond defaults over five years.
  • Ireland, Greece, Portugal and Spain remain in tenuous financial condition.
  • The devastating earthquake in Japan has broad economic ramifications.
  • Unrest in Libya and in the rest of the Middle East threatens oil prices.
  • What does it all mean for investors? How fortunate we are to have so many "experts" who can make sense of these disturbing developments.

    Money manager Laszlo Birinyi advises"[]These kinds of strong beginnings lead to long and durable bull markets. Hedge fund manager Barton Biggs agrees.

    Over at The Wall Street Journal, they're not so sure. Brett Arends listed ten reasons why investors should be worried. His sources are interesting. He relies on an unnamed "European hedge fund manager" who is "worried about China." The source is not buying aggressively, and Arends find that significant. It's quite remarkable what passes for responsible financial journalism at The Wall Street Journal these days.

    I get asked for my opinion on many of these issues by readers of my books and blogs, advisory clients and prospective clients. Many can't hide their disappointment when I tell them I have no clue how these events will affect the markets. What's more, neither does anyone else, including those who are so confident of their predictions and who dispense their advice so freely. What's more, I don't care and I don't believe intelligent investors should either. Here's why.

    Many studies confirm the relationship between loss of money and suicide. Ask most men what they fear most and they will tell you it is the loss of their money and homelessness. You would think their investing decisions would seek to minimize this possibility. Instead, they are more often focused on the short term consequences of current events. This makes no sense.

    The average sixty-year-old will live another twenty years or so. Here's the only question she (and all other investors) should be asking her financial advisor:

    Can you financially engineer a portfolio for me, using long term (at least 50 years) data, that will maximize my returns for the amount of risk I will be taking, for the rest of my life, and will minimize the possibility that I will be destitute in my old age?

    The good news is that it is very easy to accomplish this goal. We have all the tools and data necessary to do so. The analysis can be based on sound academic, peer-reviewed research, used by savvy pension and trust fund administrators and high net worth individuals. Of course, it's not predictive, but it's far more reliable than relying on financial astrologers. I have rarely met an investor who had such a plan, or who understood that he could get one.

    You have a choice. You can listen to the musings of people who believe they can predict the future, or you can plan intelligently for your own future.

    The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

     
     
     

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