SECRET TO PORTFOLIO GROWTH: TUNE OUT THE NOISE

Originally appeared in the Jerusalem Post on Thursday, October 28, 2016. 

I write this column after just concluding a phone call with a client that was worried about the upcoming US presidential election results. The client said that she heard that if Trump wins the market will drop 25-30%.  Another client told me that he heard that if Hillary wins the market will drop as well. If I had to guess I would say that over the last month and a half I have fielded 20-25 calls like these. Turn on the TV and you will find pundits talking about the most recent polls and the impact on the day’s market movements.  While some investors stayed glued to this content all day the long, the question I would ask is whether this important at all, and is it really an integral part of an investment plan to know what is going on in the market on a day by day basis and how certain events like the upcoming election effect the market?

It’s too loud

There is just way too much information out there. Both social and traditional media are full of conflicting prognostications about what will happen. It’s not just the elections. Every time you read the financial section, watch financial TV or even open your email, investors are inundated with all kinds of trading ideas. They then are unable to distinguish between good ideas and “less” good ideas, and start buying and selling.  It’s very difficult to always be right when trading stocks actively. In fact, if you trade too much, instead of investing in a company, you are basically gambling as to which direction a stock will move.

In a Marketwatch article George Sisti, CFP, writes, “Post-election, the question asked in the financial media will be “What does the winner’s victory mean for stocks?” I caution you against giving credence to the opinions and prognostications of media pundits and forecasters. None can honestly claim that they know how the stock market will react to the election’s outcome. You’d be foolish to make portfolio changes based on their educated (and, all too often, uneducated) guesses. Attempting to outguess the market’s response to the election’s results is a loser’s game — a leap off the high board into the shallow and brackish pool of market timing.”

Sisti continues, “In the years ahead, there will be geopolitical and economic crises of various sorts, politicians that you can’t stand, bubbles that create investor euphoria, panics and crashes that create investor despair — just like always. Many corporations will adapt and become more profitable while others will fail, to be replaced by new entrants that will soon become household names. Your investment time horizon is the rest of your life, not the next four years.”

Quality rules

The path to a secure financial future is paved with owning quality assets, saving and living within your means. I met with a recent retiree who started building a nest egg at a rather advanced age. On a very modest salary he managed over 20 years to build a portfolio of $750,000. I asked him what his secret was and he said that he knew that he was starting to invest later in life and that he had no choice but to save as much as possible. He said that he only bought what he needed and what he had money to purchase. No credit cards, no installment plans and no debt. He just followed those times tested principles of saving money, investing and not borrowing money.

Investors need to remember that there are no shortcuts when it comes to investing. There is virtually no way to get rich quick in investing. Over the long-term the results of the election are not so relevant vis-à-vis the stock market.  By staying focused and disciplined with your investment portfolio you have the potential to build wealth for the long term.

The information contained in this article reflects the opinion of the author and not necessarily the opinion of Portfolio Resources Group, Inc. or its affiliates. Aaron Katsman is author of the book Retirement GPS: How to Navigate Your Way to A Secure Financial Future with Global Investing (McGraw-Hill), and is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the United States. Securities are offered through Portfolio Resources Group, Inc. (www.prginc.net). Member FINRA, SIPC, MSRB, FSI. For more information, call (02) 624-0995 visit www.gpsinvestor.com or email aaron@lighthousecapital.co.il.