Finance and investing is and has always been, an interesting and often confounding topic. It is rife with significantly different points of view about the same matter from different people and organizations, and that dispersion of expectations can cause uncertainty and volatility (and makes success a challenge). Since these aspects of finance can often lead to inaction, or sometimes the wrong action, how do we find paths to success with so much uncertainty, and when so little seems empirical?
One important skill to master is learning that some “facts” will matter more than others, and figuring out the ones that will can contribute greatly to investment success. Markets will generally move meaningfully on surprise, both higher and lower. Discerning which way the dominos are going to fall and why, can contribute greatly to success as an investor. This obviously suggests, that when seeking out reliable guidance on these issues, one must be thorough in vetting the advice and counsel being offered.
Another important contributor to investment success is to remember to act upon what we can know, and not merely hypothesize. What does that mean? Often it means that we can work to accurately and completely determine our own investment needs, goals, and objectives, and what types and levels of risk we are willing to accept. Once these determinable elements are set, the deployment of capital can become simpler to get right, and have one’s investment characteristics be well aligned with those elements.
An often ignored aspect of investment success is that non-investment personal finance matters can be as or more important than the investments themselves. Thorough risk identification and assessment, proper titling, tax management, and sound financial planning can contribute significantly to overall success.
Lastly, we must also assess where the economy and markets are going, another topic where opinions are all over the map. As an example of looking at facts that matter, we encourage folks to remember that the unprecedented liquidity from Quantitative Easing by the Federal Reserve and the US Treasury, along with significant fiscal stimulus from Congress (with more to come) will likely override many risks and propel an ongoing cyclical recovery in the economy and markets.
Given how significantly the market has already recovered, we must remember that equity markets are not homogenous, and sectors and stocks that have led previously can regress to the mean, putting other sectors into favor. Small-cap stocks, emerging market stocks, and other equities that have lagged the performance of technology and pandemic stocks in 2020, may be well positioned today for a number of reasons. The same is true in the bond market, where pockets of opportunity, and greater risk exist, and the dispersion of return in different parts of the bond market is likely to increase.
The conclusion is: pursue exceptional advice, know your own needs and desired outcomes through thorough and formal planning, work to develop the facts that matter, and review and revisit your inputs and output regularly.
I wish you and yours a healthy, safe, and prosperous 2021 and beyond.
Contact Kelly Dougherty