Occasionally, I’ll come across an article that I like to pass along to clients, prospective clients, and readers of this blog. This is one of those times.
Jim Parker, Vice President over at Dimensional Fund Advisors (one of SageOak’s investment partners), writes a regular column called Outside the Flags.
In this month’s column, he talks about the destructive behavior investors can fall prey to when they start to focus on a recent trend in the markets, instead of their long-term goals and investment strategy.
It’s a short, two-page article that I think you’ll find interesting. You can download a PDF copy of this article by clicking the link below…
As you can see from the article, many investors struggle because they are constantly jumping from trend to trend, attempting to find the “next big thing” before it happens.
This is similar to the way some people choose clothing, always wanting to wear the newest and trendiest shirt, pants, or shoes. Sometimes they end up looking great, but most of the time they end up with lots of outfits they’ll look back on one day and say, “What was I thinking buying this stuff?!?!”
Crystal Ball Syndrome
The problem is that we don’t have a crystal ball. Only God knows who the next Apple or Google will be before it happens (or what the next big fashion trend will be).
But when we start to invest as if we CAN predict the future, then the following sequence is a typical, albeit unfortunate, result…
- We unnecessarily increase investment costs and risk
- This leads to lower returns in the short and long-term
- Which can lower our odds of investment success
- And, ultimately, it means we might not reach our goals
I don’t know about you, but that doesn’t sound like a path I’d like to travel any time soon.
What can we do to stop this from happening?
Below are three tips…
1. Block out the noise
For starters, we can stop paying attention to all the “noise” around us.
In other words, if you watch CNBC or read personal finance magazines, realize that what you’re watching and reading is entertainment…not financial advice.
Do you really think if a stock tip was worth acting on, they’d be broadcasting it on television or posting it in a magazine for thousands, if not millions, of viewers to hear about or readers to see?
Yeah, I don’t think so either.
2. Get some help investing
We need to realize that we can’t do this alone and we can’t predict the future. None of us is immune to this crystal ball syndrome. We all need someone who can help us get out of our own way and stay on the right track towards reaching our short-term and long-term goals.
One of the richest men who has ever lived once said…
Where there is no guidance, a people falls, but in an abundance of counselors there is safety. (Proverbs 11:14)
We ‘d be awfully wise to take his advice to heart.
3. Invest using financial science
Although using your “gut” can be a good way to pick the best apple cobbler, it’s not a smart way to pick the best investment.
Instead, use principles that have proven true time and time again, across various countries, asset classes, and economic conditions while basing your investment decisions on financial science.
You wouldn’t let a physician perform heart surgery on you based on what his “gut” said. So, why do most people let a financial advisor do the equivalent with their investments?
There aren’t many firms out there that base their investment philosophy on financial science, but fortunately, there are more and more firms like SageOak that use technology to work virtually with clients all over the country.
That way, you can get good advice no matter where you live.
Some people might close this out by saying, “Now that you know what to do, go do it and good luck!” but there’s nothing lucky about it. It’s simply using timeless wisdom and principles to develop and implement a plan backed up by decades of scientific research.
So, instead of “good luck” it’s just good advice.
If you want to learn more about how a small, but growing number of firms like SageOak utilize financial science in their investment process, check out our free eBook Investing Fundamentals: What Every Investor Needs to Know.
You can get your complimentary copy here.
And stop picking your investments like some people pick clothes. Block out the noise, get some help, and trust your investments with someone who will put financial science to work in your portfolio.
Here’s to wiser and better investing!