Don’t Let Their Conviction Fool You

I have to confess something…I don’t follow my own advice when it comes to CNBC. I tell clients all of the time to tune out the noise and not to even turn the station on. Yet, it’s streaming all day in my office; granted all but an hour of the day the sound is turned down so I can listen to music, but it’s still on. I guess it’s do as I say, not as I do.

One good thing about having CNBC on all day is I’m aware of what clients may hear if they don’t listen to my advice, so I can address their concerns. Over the last couple of weeks, there has been no shortage of forecasts for what 2018 will hold for the markets and economy. And this is just the beginning; expect more forecasts in the coming weeks as market news tends to be slow in the last couple of weeks of the year. Today, in just five minutes, I heard the following:

“The S&P 500 will end 2018 at 3,000.”

“The S&P 500 will end 2018 at 2,700.”

“Tech will lag.”

The predictions themselves do not impress me, but it’s the conviction in which they are delivered. Getting airtime on CNBC, Bloomberg, or pick your channel, is an analyst/investor’s chance to make a name for him or herself. Despite their supporting arguments, if the analysts were being honest, they’d admit their prediction is really just a guess–a shot in the dark. If they happen to guess right, or at least get close, they’ll look like a genius. Raising money, getting invited back on the show, and moving up in the investment world all become a little easier. But, if they get it wrong, which most will, there is little consequence.  They may not become the next investment rockstar, but they also won’t lose their job. In fact, they’ll probably get another chance down the road. After all, CNBC and Bloomberg only recently stopped inviting Marc Faber on their shows; not because his ludicrous predictions have been wrong for so long, but because he turned out to be a racist–I am glad his words brought a swift action. For analysts, the risk/reward is heavily slanted in their favor, so why not make a prediction with a strong conviction?

The problem is, there are investors who will take the prediction to heart and act upon it without doing their own due diligence. A small part of me thinks if an investor is willing to run with something they hear on TV without doing their own research, they deserve whatever the outcome may be. However, I know most investors are just trying their best to do the most with whatever they have, and being on CNBC with a compelling argument brings immediate credibility in the eyes of many. So while the analyst feels no consequence from a prediction gone awry, investors with little margin for error get burned.

There are very few things I feel a strong enough conviction about to go on the record and make a prediction about, and I’ll most certainly never make a stock market, stock or GDP prediction. However, there are a few things I do have a strong enough conviction to go on the record about; only they are not as exciting as S&P levels…you probably won’t hear these in the mainstream financial media. That’s ok though. Because in the financial blogosphere, there are many financial advisors sharing information that increase the chance of success for investors…you just have to know where to look.

If I were on CNBC and asked to make a prediction for 2018, I’d defer, but not before I pointed out the following to investors looking to improve their financial situation:

• Have a plan. A financial plan is the foundation of every relationship with my clients; without a financial plan, the following bullet points would be difficult to execute, which significantly reduces the chances of reaching any goals. A financial plan can help determine how much money needs to be saved, how it should be invested, what type and how much insurance is needed to properly protect a family, an income strategy, and so much more. In addition to providing the roadmap, a financial plan can help provide the confidence to not act when life gets turbulent–sometimes inaction is the best action.
• Live on less than you make. In America, we have a spending problem, and I’d be lying if I haven’t had my own spending hiccups from time to time. But, there are plenty of studies showing the amount of money saved is just as important, if not more, than how it is invested. Living on less than you make affords you the ability to avoid bad debt and grow your net worth through accumulation–the recipe for success. I’m not suggesting you sacrifice everything to save for the future; I’m a believer in finding a healthy balance between living and preparing but doing so on less than you make.
• Invest regularly. If you are living on less than you make, you will eventually have an adequate emergency fund and be ready to start investing some of your assets. Despite what the analysts we discussed earlier suggest, there is no way to know what the market holds in the short term. However, in the long term, there is substantial evidence suggesting the best way to grow assets is through investing. Putting money to work in the market is often easier said than done; inevitably, investors will try to time the market and there will always be a reason to wait to invest. Waiting often leads to missing out…just ask those sitting in cash since 2009. Don’t try to be a hero; save regularly through a 401(k), set up monthly contributions to a Roth IRA, or any other dollar cost averaging strategy to put your money to work and like 50 said, “watch the money pile up.”
• Look to hold a low cost, globally diversified portfolio. Evidence not only suggests investing is the best way to grow assets, but a low cost globally diversified portfolio is the best way for most investors to allocate their assets. In theory, picking individual stocks, or even sectors, should be easy and fun, but it is the complete opposite. Thanks to a decreasing number of individual stocks to invest in, more information available to investors, and emotionless algorithms trading, it is becoming increasingly harder to successfully pick stocks. There’s nothing wrong with being boring and using ETFs, index mutual funds, or other low-cost funds, like Dimensional Funds to build out your portfolio. K.I.S.S.
• Control your emotions. Don’t make money decisions during stressful times–the stress will most likely lead to poor decisions. Again, sometimes inaction is the best action.
• Have the proper insurances in place. Saving and investing is great, but if your family doesn’t have the proper protection against death, disability, liability, or other events we hope never happen, that pile of money you built up will vanish.
• Don’t do dumb stuff. If your gut is telling you not to do something, you probably shouldn’t do it (currently: cryptocurrency).
• Find a financial advisor. Not everyone needs a financial advisor, but for many, having someone to help create a plan and investment strategy, handle the ongoing investments, provide guidance when important financial decisions need to be made, and to be there when some reassurance of the plan is needed is invaluable. A financial advisor can be that someone.

While I don’t anticipate a phone call from the producers at CNBC to discuss these areas of focus, it doesn’t mean they are any less valuable than where the S&P 500 ends up or tech might do next year. In fact, they stand a better chance of helping investors than anything reported on TV. Now, how’s that for conviction?

Disclaimer: Nothing on this blog should be considered advice, or recommendations. If you have questions pertaining your individual situation you should consult your financial advisor. For all of the disclaimers, please see my disclaimer page.