Financial Life Focus

How to clearly navigate your financial life

Headlines: Fear and Worry Replaces Fear and Worry!

Don't let the news confuse...

The last several months have been highlighted with headlines reporting the fear and worry around new highs being experienced in the stock market.  Lately, these headlines have been bumped and replaced with new fear and worry stories about earnings.  I must be missing something because it sounds to me like first there was concern that the markets were experiencing positive results, after years of decline and recession.  Now, those fears of increase are crowded out by stories that expound on predicted lower earnings from the first quarter.  Talk about a circuitous equation: the worry that the market it up followed by the worry that earnings will not support the higher market!

For those of you, panting on the sidelines, waiting to invest the cash you stashed in the mattress during the peak of the recession, (after you sold your equity holdings when they were hit so hard and you just couldn't take it anymore), your crystal ball of market timing is broken. Throw the damned thing away.

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For those of you watching the market, guessing when the correction will come or guess how much further this market expansion has until that correction; my suggestion is find another hobby.  Perhaps go to the Animal Shelter and adopt a dog or cat that needs love and affection. 

For those of you looking to uncover the next "Apple" at $8 per share that will undoubtedly shoot to $700, studying the fundamentals, scouring the prospectus envisioning sugar plums and angels: it might be time to go hug your spouse and children or maybe read a book for shear enjoyment.

What we are talking about is using time, your time, in a more worthwhile endeavor.  You see, time is one of the keys to successful investing; not stock picking and not market timing.  Equity investing is a long term proposition (or at least that's what all the textbooks say) that for some reason has become a short term game of guts and glory along with the agony of defeat.  Which, if you get the reference is describing sports and should never be confused with appropriate investing.

Negative headlines that promulgate fear and worry is the norm today.  It feeds on our instinctive sense of self-preservation.  But what it really does is create a sense of foreboding and worry; even for those who have established well defined, appropriate and long term portfolios.

What is true is that time, diversification, reasonable expectations and the ability to go through tough times without bailing is your best chance of long term success.  The term success is  tricky because we all get to define it based on our own set of beliefs and expectations.  I would implore you to tie your success to your ability to meet a specific objective that is set to a reasonable and rational amount of time.  If you believe success is achieving annual rates of returns of 40% with no risk and never have a down year-I suggest you need a new set of expectations and perhaps a turn on the therapist's couch.

The reality is, on average, in any given ten year period of time, you will experience two down years, two flat years, two fair years, two good years and two REALLY good years.  So 40% of the time your portfolio will be down or flat.  Get over it-expect it-live with it, because it's the 60% of time in plus column that you're after.  Oh, and PS, recessions happen every  twenty to twenty-five years.  We also know that markets have different cycles and interest rates rise and fall.  We further know that inflation is ever-present in one way or another and therefore in order to achieve REAL return, we must exceed the effects of taxes and inflation.

We control the expectations we set. We decide whose advice to follow (and for how long).  We decide our values, our dreams and our reasons to get out of bed in the morning.  We cannot control the headlines or stories created. Don't let the fear and worry distract you from achieving success.

Michael F. Kay, a Certified Financial Planner, practitioner and a CPA, is president of the firm Financial Life Focus.

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