In our last piece, we described why most investors should ignore the never-ending onslaught of unpredictable financial news and tend to three strategies that can be much more readily managed – at least once you know they are there. Hidden in plain sight, these potent strategies include:
Being there
Managing for market risks
Controlling costs
Plain-Sight Strategy #2: Managing for Market Risks
Don’t take on more risk than you must.
There’s no getting around the fact the market does not deliver rewarding returns without periodically punishing us with realized risks. That’s why it’s so challenging for most investors to “be there,” consistently capturing available returns by remaining invested over time. It’s also why it’s vital to avoid taking on more risk than you must in pursuit of your personal goals. For this, we have two powerful tools at our disposal, best used in tandem: Continue Reading…
If you’ve ever dabbled in graphic design, you’re familiar with the concept of white space. When viewing an illustration, we typically pay the most attention to the visible ink on the page, such as a paragraph of text, a bar chart or an entertaining illustration. White space is the essential empty areas in between that are hidden in plain sight. We barely notice them … until they’re not there:
Where’s the white space? (Deposit Photos)
When making investment decisions, most people likewise assume that the most eye-catching ink matters the most: an alarming economic forecast, an exciting Initial Public Offering, hot trading tips. But there’s a catch. This evident assumption does not hold up under evidence-based scrutiny. In reality, you have little or no control over how the most obvious news impacts your investments. The most exciting action has already been priced into any trade you might make well before you decide to make it.
Stop fixating on headlines
Instead of fixating on the headline news, consider that liberating financial white space. There, hidden in plain sight, you’ll find a number of powerful investment strategies that are freely available and far more within our control. In this series, we’ll introduce three of our favorite “plain sight” investment strategies:
I often hear the phrase protect your downside. It’s the sales pitch that a large part of the investment management industry thrives on, and it plays to the myopic loss aversion that most investors exhibit.
Myopic loss aversion is the tendency of investors to evaluate their portfolios frequently with greater sensitivity to losses than gains, causing them to act as if their time horizon is much shorter than it actually is.
Let’s look at the example of John, who wants to invest for his retirement 30 years from now. After happily watching his portfolio increase with steady returns for a few years, he panics when the market trends down slightly for a week. He knows he doesn’t plan to touch the money for a long time, but the thought of a decline, even over a relatively short period of time, makes him feel sick. He may even pull his money out of the market until things feel safe again.
Myopic loss aversion
An obvious path to safety would seem to be hiring a person or a company that knows how to protectyour downside, and the investment industry has answered this calling. Continue Reading…
I have been writing about personal financial issues for over 12 years now. I have also been giving seminars to other accountants on my ideas since 2008.
Suffice it to say I have spent a large amount of time thinking about and analyzing the best way to get ahead financially and I have had a tremendous amount of feedback along the way.
And I still have 100% of my family’s investments in guaranteed fixed-income products.
Zero exposure to stock market
That’s correct, I have zero exposure to the stock market. It’s all in Guaranteed Investment Certificates (GICs) or provincial government bonds using a three-year laddered approach.
Sound crazy? Well I’ll tell you why it’s not.
First of all, the assumption is that you have to have exposure to the stock market because it’s the only thing that will give you excellent returns. But how good are those returns versus plain old GICs?
I have done an analysis for my Enough Bull course that will give you some idea. Continue Reading…
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