The two of us and another gay couple celebrate July birthdays. We take the opportunity to have a splendid dinner and great conversation and rein in four free desserts!
We'd scarcely sat down when our friend Bob complained to the waiter about the noise from 10 drinking patrons at the adjacent table, two feet away. We felt uncertain about a quiet and peaceful dinner, feeling we had to do something. This popular restaurant was full, so we couldn't move to a quieter area, and it was too late to overreact by leaving for a quiet bistro. Fortunately, the noisy patrons had drunk enough and left after a few minutes. Thank goodness!
Our inebriated, noisy neighbors got us thinking about another type of noise, one with potentially negative consequences on investments.
In the coming months the corporate financial media and pundits will bombard us with frightening predictions and conspiracy theories as we approach the contentious debt ceiling debate, endless talk of a new Federal Reserve chairman and limitless other petty items. The financial news racket has little or nothing to do with maintaining our balanced investment plan. No matter what your age or individual financial status may be, do not change your retirement plan because you heard a piece of scary financial information from the print media, television or the Internet for the umpteenth time. Your retirement plan should be set up now to consider all sudden crises that might affect your portfolio. How can we prepare for endless uncertainty?
In the middle of panic-driven financial news affecting stock market performance, we often think we have to do something. Tomorrow's overreaction to stock market volatility can be prevented by what you do today. Preparation will protect you before your analytical monkey mind deep-sixes you. Get your head and your asset allocation (AA) established early on.
First your head:
- Think long-term -- 15 to 20 years or more.
Asset allocation (AA):
- Keep it simple.
We expect nothing more than what the market offers in our balanced plan. No expert, no fortune teller, no guru can predict ahead of time stock market bulls and bears. Stick with the plan through market noise and volatility. In the last debt ceiling debate in the summer of 2011, our 70/30 portfolio declined in value by tens of thousands. It was only a 7-percent decline, but it was significant. We were concerned, but our pre-plan prevented us from overreacting by bailing out or changing our asset allocation. Our portfolio recovered what we "lost" in the subsequent four months.
Ignore the Noise
Like our restaurant party-goers, noise moved on, and the uncertainty of a quiet dinner resolved itself. In the business news world, media racket comes and goes and will always be replaced by similar brouhahas. Their purpose is to grab the investor's immediate attention so that their ratings rise, but the collateral damage is worse. Far too often investors want to do something: buy, sell, panic or all the above. The more shares bought and sold, the richer Wall Street and your broker get. William Bernstein, in his book The Four Pillars of Investing, wrote that "you are better-off ignoring the entire genre -- print, television, and the Internet."
A fiduciary fee-only adviser can help draft your AA strategy and urge you to stay the course. This psychological support should not be underestimated: A competent adviser will help you stick with your plan.
An unexciting portfolio is a genuine gift that flies in the face of the tumultuous and illusory world of over-the-top financial "excitement." Yes, it's tempting, but an exciting and "glamorous" portfolio will not get us to our financial goals safely. Remember, friends who brag about how much money they made will not share stumbles or sleepless nights. We know who won the race between the tortoise and the hare. A "boring" portfolio builds wealth slowly and steadily, allowing time for a good night's sleep, quality time with family and friends and a comfortable nest egg in retirement.
Sharing our birthdays with gratitude for good health, good friends and our 38-year relationship is genuine life-affirming excitement. By the way, the free desserts were fabulous too.
Best of fortunes.
Content concerning financial matters, trading or investments is for informational purposes only and should not be relied upon in making financial, trading or investment decisions.