A few articles ago, I introduced the field of behavioral finance, and the threats investors face if they ignore the emotional, instinct-driven side of money management. I promised to follow up with some of the specific biases that impact otherwise rational investors … like recency. It’s a good one to recognize if you’re wondering what to make of recent increases in market volatility.
My favorite annual sporting event is the NCAA Men’s Basketball Tournament. I’m writing this during the first weekend and, wow, what a truly mad season it’s been so far. #13 Buffalo beat #4 Arizona, play-in Syracuse beat #3 Michigan State, and Texas A&M beat #2 UNC. Then, in an upset for the history books, the University of Maryland, Baltimore County (UMBC) Retrievers trounced UVA, the #1 team in the country. Never has a #16 underdog beat a #1 seed in the men’s tournament … by 20 points, no less!
It’s a fact of life: Not all financial “advisors” are created equally. Regulators may do their best to protect you from the sheep-cloaked wolves of Wall Street, but “buyer beware” remains my advice.
As a seasoned advisor with a long list of financial credentials, I’d probably be pegged by most people as a “numbers guy.” It’s true, I am quite fond of charts and spreadsheets. But any advisor worth his (or her) salt quickly learns numbers alone aren’t enough to get the job done. We also must be well-versed in behavioral finance, i.e., the many threats investors face from the emotional, instinct-driven side of money management.
What should investors do in volatile markets? My advice is the same for all markets: If you’ve got a personalized investment plan, market jitters shouldn’t matter; ignore them and stay the course. If you’ve not yet got a plan, seize the day, and get one.
As a financial planner in the D.C. region, most of my conversations are about my clients’ financial goals – especially the essential end game for most investors: planning for retirement. After that, we usually end up bemoaning the performance of our pro sports teams around these parts. Clearly, I can’t do much about that, but I can tell you the four main factors that contribute to a successful retirement:
With the U.S. stock market at all-time highs, I’ve noticed a spike in the number of financial gurus predicting it soon will fall – a lot.
Every so often, the market has fallen a lot on its historical trajectory to higher highs. But, while we may wish otherwise, nobody can tell us just when those falls will occur.
Barring unforeseen circumstances, Jerome Powell will become the next chair of the Federal Reserve (the Fed) when Janet Yellen steps down in February 2018. While we wait to find out more about Powell’s policies, there’s a bigger puzzle you may be pondering: What is “the Fed,” anyway (and what’s it to me)?
As I write this, I assume that the GOP tax plan will be signed into law and mostly go into effect January 1, 2018. Is there anything you can do now, before the rules change? The general advice is to push income into 2018 when tax rates should be lower and accelerate tax deductions into 2017 where they should affect a greater tax savings. At this late date, you likely have little control over the timing of your income and tax writeoffs with one exception: how much you contribute to charity.