“The signs are everywhere…”
It was an ominous headline to an email that caught the attention of a client.
“Is this something I should be concerned about?”
Concern, worry and a buying decision to subscribe to an expensive newsletter was exactly what the email’s author was hoping to elicit.
The email’s author had “seen several economic signs” that “caused him concerns,” so he got on the phone with “a man who specializes in research on this sort of thing…he’s one of the most widely-followed financial analysts in the world…over the last few months, he’s been holed up in a remote hideaway in rural Argentina.”
You can’t make this stuff up…
The email went on to describe the “signs” this ex-pat in Argentina was seeing which he says will “catch anyone with money in an American bank… credit union… or retirement account… completely off-guard.”
Scary.
Economic Doomsday, The Coming Economic Earthquake, The Real Crash: America’s Coming Bankruptcy, How to Survive the Coming Economic Crisis…these are just a small sampling of the titles I’ve seen over the years.
There is always an audience for doomsday.
It reminds me of the quip I ran across said by one economist about another, “He predicted 19 out of the last 3 recessions.”
“The only function of economic forecasting is to make astrology look respectable,” John Kenneth Galbraith once said.
That is not to say these doomsday messages are always wrong. As the old saying goes, even a broken clock is right twice a day.
The books and articles that sell the best usually make very specific predictions about doomsday economic events that will happen in the near future. In 2016, author Harry S. Dent, Jr. wrote The Sale of the Lifetime: How the Great Bubble Burst of 2017-2019 Can Make You Rich.
Inconveniently, the stock market rose about 50% during that period of time.
Dent was just three years early!
But that’s really my point.
A great deal more money has probably been lost trying to predict and avoid these calamities (some real, most imagined) than has been lost due to them.
Until someone comes up with a better idea, I’m sticking with a tried and true formula I recommend to all my clients:
Make a financial plan that tilts towards pessimism. The tilt towards pessimism respects the reality that unexpected bad things happen in life. We need to plan for those with appropriate measures of accessible cash and risk-shifting insurance.
Make an investment plan that tilts towards optimism. Your investment plan is always a sub-set of your financial plan, not separate from it. It takes its orders from your financial plan. That means the risk shifting and cash accumulation come first, before investing.
When it comes time to invest, I believe the approach of buying the highest quality stocks and bonds available at the time, in a proportion (or an asset allocation) appropriate to you and your situation is the wisest approach. Depending on your situation, you may buy these securities individually, in traditional mutual funds or in lower cost exchange traded funds.
With a balanced plan that protects your backside and gives you exposure to the upside, you don’t have to obsess over the never-ending cascade of doomsday predictions that come your way.
You can worry less and live more.
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