Warren Buffett, arguably the greatest investor to ever live, said, “I have never met a man who could forecast the market.” No one can consistently predict markets; this is perfectly irrelevant – to successful investing.
No investment product makes sense outside the context of an overall plan. At the very least, the plan should be some form of statement of goals and investment policy. Ideally, it will be a complete financial and estate plan based on what is most important to you.
I have never met a prospective client planning to fail, but many are failing to plan. A client trying to hire a financial advisor solely for portfolio management-or anything other than a coherent and comprehensive plan-is a client that has come to an advisor for the wrong reasons.
Economics is the science of choice. Because of this, the most important quality an advisor has to benefit the client is empathy, not expertise. I will never be able consistently predict nor control what the economy is going to do, nor what the markets are going to do.
Relatively few households, regardless of commitment to thrift and to planning, will be able to afford all the protection and all the investments they ideally wish to acquire. Life, health, disability and long-term care insurance premiums plus the funding of robust education and retirement investment accounts may simply not be within most people’s financial capabilities.
In addition to not being able to anticipate markets or the economy, you will never be able scientifically or mathematically select investments for superior future relative performance, neither can anyone else.
If markets and the economy and performance for similar investments, are utterly unpredictable, what variable dominates long-term, investment outcomes? The answer is the behavior of the investor. The dominant determinant of lifetime investment outcomes is not investment performance, but inventor behavior.
A primary function of a good financial advisor is helping clients keep from throwing too much money at a fad near its top, and prevent them from panicking out of a well-diversified portfolio near a market bottom – greed and fear – human nature.
An economic or market outlook can only skew my best efforts, transforming a plan and process into a bet, so I don’t think about different market cycles, bur rather ponder the question of how my client will live 30 years without a paycheck during retirement. The financial advice business is about the study of human nature and my goal is to help people find lasting financial security, and do more of what they love.