CONFLICTING INVESTMENT ADVICE

 Do you notice how much conflicting investment information there is out there?

Here are some of the varying points of view that we all come across daily:

• Buy bonds.

• Don’t buy bonds.

• Don’t buy funds. 

• Buy individual stocks. 

• Buy international stock funds because the economies in places like India and South America will grow faster than the US economy in the coming decades.

• Don’t buy international stocks.

• We will avoid a recession and this will be a big year for stocks.

• The US economy will be going into a recession in 2024 and stocks will decline by 30% or more as a result.

I could keep going and going with this list.  It seems that no one can agree on anything about investing or the economy.

Why is this the case and, more importantly, what is the average investor supposed to do with all this conflicting information?

There are several reasons why all these contradictions exist.

• Nobody can predict the future with any accuracy or consistency.  It is just too hard to predict asset prices and the economy.  There are too many things (known and unknown) that affect financial markets. 

• The motivation of the forecaster may not be about being correct.  Often, the people who predict things just do it for media attention.  Bold and dire predictions get the most clicks and the most views.  Look for hidden agendas.

• When it comes to investing guidance, people are relying on different facts or theories.  And some of those theories are driven by the interests of the investment industry and not the interests of the investor. 

Because the investing world is so messy and full of conflicting information, it is important for you to:

• Ignore short-term forecasts of things that are too hard to predict like the direction of the stock market, the direction of the economy, the direction of interest rates, etc.  Since investing is a long-term game, this is fine.  Stay focused on long-term data and data that is consistent.

• Understand the data and the facts behind the advice.  Is it just an opinion that is grabbing a bunch of facts to support their opinion?  Or is the advice driven by sound and consistent data and logic that have held up for 30 years or 50 years or more?

• Understand the motivation of the forecaster or expert.  Are they committed to truth and logic or are they going to benefit financially if you believe their assertion.  The Asset Allocation model based on risk-profiling is the financial lifeblood of the investment services industry.  If you believe in their model, then you will need their services and you will pay their fees to help you manage your investments. 

The facts are very clear.  There are several foundational principles about investing that you can rely on:

• The broad US stock market as measured by the S&P 500 will grow by roughly 9% to 10% per year over the long term.

• Large cap, growth index funds can generate 12% to 13% per year in the long run.

• The best you can do with bond funds is about 3% to 4% per year.

• International stock funds have only generated about 6% per year over long periods of time. International stocks also carry currency risk.

• Stock market investments will be very volatile.  In the short-term, stock prices will be move up and down irrationally. 

To be an excellent investor, you need to do just a few things well.

1. You need to take a long-term view.  Focus on your 5-year, 10-year and 20-year returns. Avoid the temptation to win on short-term trading.  Short-term trading is gambling and not investing.

2. You need to invest in the funds that have the best and most consistent long-term performance.  You will not be able to beat the market in the long run by picking individual stocks.

3. You need to invest in a very disciplined fashion.  Avoid emotional investing.

4. You need to have a proven and tested strategy of dealing with the inevitable stock market collapses.
   

Stay Disciplined My Friends,

Phil

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Disclaimers The Beyond Buy & Hold newsletter is published and provided for informational and entertainment purposes only. We are not advising, and will not advise you personally, concerning the nature, potential, value, or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. Beyond Buy & Hold recommends you consult a licensed or registered professional before making any investment decision.

Investing in the financial products discussed in the Newsletter involves risk. Trading in such securities can result in immediate and substantial losses of the capital invested. Past performance is not necessarily indicative of future results. Actual results will vary widely given a variety of factors such as experience, skill, risk mitigation practices, and market dynamics.