October is a month that a lot of people get skittish about when it comes to the markets so we thought a little background and a new perspective to investing would be appreciated. I spent a summer one year analyzing thousands of mutual funds. I was given the task of finding a mutual fund that had outperformed its benchmark but with less risk. As all the theory I had studied had indicated this shouldn’t be possible. The only way to outperform a benchmark or index is to take on more risk with the outperformance going up in lockstep with the increase in risk.
By the end of summer, I had found exactly zero such mutual funds. Since then, there has been much research on the value of forecasting as well as investment the value of investment managers. Forecasters (economic, weather, financial, political) it turns out are not very good at their job. It also turns out that the more confident a forecaster is the less accurate his predictions tended to be. But we humans seek out forecasters because it appeals to our need to be comforted and assured as most people are risk averse. There will always be prognosticators predicting the next bear market or dare I say crash and eventually they will be right. But a broken clock is right twice a day we used to say on the trading floor (pre digital). I guess broken digital clocks are just dead. Knowing that forecasting is extremely difficult and rarely correct, how then can we build portfolios for clients. Well, we try not to forecast but rather build all weather portfolios. There is a lot of investing evidence out there now and it shows that the power of investing lies not in the predicting but in the consistency. Someone who invested consistently (monthly contributions) over the past 40 years will have outperformed the luckiest of investors who invested only at market bottoms as well as the most unlucky investor who only invested at market tops (right before a correction). The investors who panic and take their money out of the market usually do so at the worst times. Then they are generally too scared to get back in. They tended to do the worst.
So, what advice can we offer you? Right now, it is quite possible (and very likely) that some markets are overvalued. There will likely be a pullback in the not-too-distant future. There will also be other black swan events, natural, and even man-made disasters pending. But a well laid out plan of consistent contributions coupled with a well-diversified portfolio is your best defense against and uncertain offence. Compounding of investment income is the real magic of the markets and in particular dividends which have accounted for the bulk of market returns over the past century. If you want to know more about how we build long lasting portfolios for our clients or need a second opinion on your portfolio please feel free to call or book an appointment through on online calendar by going to our website at www.levesquewealthplanning.com. This could be your greatest opportunity. We have limited capacity. Don’t miss out.
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