How many of you are tired of all the talk on the fiscal cliff, including the non ending stream of opinion and regurgitated sound bites?? May I suggest we spend the month of December focusing on family, love ones, and our community? Let the spinning heads, politicians, and so called expert economists beat this horse to death. I think perhaps tuning out until January could make for a happy holiday season.
Do we follow the town criers and flee to cash and sit on the sidelines until we see what happens? Should you buy more stock? Or do you sell?
The financial press doesn’t seem to help. Depending on what you read or which radio or television show you listen to, the advice is all over the place. Just look at some of the headlines from this past week:
•Fiscal Cliff talks lift stock market (CNN)
•Markets stuck until Fiscal Cliff Deal (CNBC)
•Fiscal Cliff warning sends stock market lower (Yahoo Finance)
So, what should the prudent investor do?
Well, the best thing you can do to protect your investment portfolio is make sure you are very heavily diversified among all the equity asset classes and that you do not panic and react to every piece of positive or negative news that you hear about the pending cliff.
Contrary to what many think, the stock markets do not act or react to what is happening in today’s news, unless that news is a complete surprise. Remember that the stock markets are what economists call, “leading economic indicators.” This means that the Wisdom of the Crowds comes into play. Buy and sell decisions are made based on where the masses expect the economy to be six months to a year or more down the road and not on what has just happened.
Current happenings have already been anticipated and were factored into the price of stocks months ago. Except for complete surprises, today’s news has nothing to do with where the stock markets will end up at the end of today or at the end of tomorrow.
Those of you who have attended our “Private Investor Education Events” have heard me repeat what serious academics and scholars have proven through rigorous research and study. “All knowable and predictable information is already in the price of a stock. It is only unknowable and unpredictable information that causes a stock price to go up or down.”
Since the long term trend of the entire stock market is always up, your best defense against events such as an impending Fiscal Cliff, is very heavy diversification among all of the equity asset classes.
If you are properly diversified in a solidly designed investment portfolio and have the discipline not to panic when everyone else is, well, going over the cliff, the probabilities are high that your portfolio will be fine over the long run.
If you feel uneasy about your current investments or if you feel that you may not be properly diversified, give me a call, and let’s talk about your concerns.