Stop Confusing Financial Education And Noise

We all hear people talking about financial education. It’s become an absolutely meaningless term, for a host of reasons.

Let’s start with what it doesn’t mean. It doesn’t mean hanging on TV pundits’ opinions of the economy, Europe, the Fed, the S&P 500, Congress, or emerging markets.

Unfortunately, much of that is what passes for “financial education” these days.

But that’s not education; it’s noise.

I met with a fellow recently who has considerable financial resources. He prides himself on being “educated.” (I’m putting that word in quotes because in financial conversations, it tends to be used inaccurately.)

This guy attends meetings of stock traders. He belongs to a group that bills itself as being for investors, but I’ve spoken to that crowd: They just want stock tips. Preferably couched in some kind sophisticated-sounding methodology with oscillators, chart patterns, time frames or some other indicator.

I know that world well. It’s easy to be mesmerized by somebody’s magical formula for beating the market. (Oh! There’s another term that is used incorrectly. “Beating the market” is a misnomer for “beating the S&P 500.”)

These “beat the market” trading schemes usually involve identifying high-beta, high-risk growth stocks that seem exciting on the surface. The drawback is, this kind of system doesn’t deliver consistent returns over time.

That doesn’t sound like education to me. It sounds like misinformation. It also makes me think of the term, “Garbage In, Garbage Out.”

So the guy I’m referring to got scared at the end of 2012. Remember what was happening then? Probably not. I’ll remind you. The media was obsessed with Fiscal Cliff fears. The entire United States would melt down, and take the stock market with it.

Yeah, that didn’t really work out so well. And there have been several other non-event, manufactured panics since then.

This guy listened to the news media talking heads and the amateurs down at the local trading group. It proved to be a costly mistake. The S&P 500 closed the  year with a gain of 32%. For this fellow, it resulted in an opportunity cost with a hefty price tag: $115,000.

There will always be media noise, and lofty-sounding opinions from your friends at the cocktail parties, the golf course, or at work. It’s not education. It’s opinion. It’s nothing, really. Nobody knows what will happen. The economic predictions or articles in Barron’s are only lucky if they get it right. (Although they will claim to be smart.)

Noise and opinions are not education. Don’t make the common mistake of confusing those things.

 

Why You Aren’t Manifesting A Ferrari

One of my podcast heroes is Dan Miller. Every Friday, I look forward to the latest installment of his 48 Days podcast. I met Dan a couple years ago at Kent Julian’s Speak It Forward boot camp, and was more than a little star struck!

Dan tells a story about a time in his life following a business failure, decades ago. As he struggled to bounce back, he force-fed his mind with inspirational audio from authors like Zig Ziglar and Brian Tracy.

I recently listened to Matt Theriault’s New Year’s podcast. He also talked about monitoring his thoughts and belief – the same message from Dan. It reinforced my intention to do the same.

As the New Year got under way, I found myself reading material from two different authors: Michael Hyatt’s Best Year Ever program and Pamela Slim’s new book, Body of Work. The two dovetailed nicely, with Hyatt offering a well-thought-out process for achieving goals in 2014. Slim’s book made me think about how seemingly disparate threads in a life or career actually connect – although it takes some conscious effort to make those connections!

Why am I writing about this on a “financial” blog? Because so many of our life decisions are intertwined money decisions – and vice versa.

“Your body of work is everything you create, contribute, affect, and impact. For individuals, it is the personal legacy you leave at the end of your life, including all the tangible and intangible things you have created. Individuals who structure their careers around autonomy, mastery, and purpose will have a powerful body of work.”

That’s both wide and deep. It would be silly to boil it down to some trite financial tip.

But it’s pretty obvious that money problems have the potential torpedo the best of personal-development intentions fairly quickly. That brings us back to Dan Miller’s practice, during those lean times many years ago, of driving around on sales calls, with a little cassette player beside him (that tells you how long ago it was!), listening to motivational speakers.

But he combined the inspiration with some practical action: For example, he wouldn’t eat lunch before he got at least one sale. So it was a little more than “The Secret” style of manifesting a Ferrari by just hoping and wishing!

Dan understood that he had very specific financial goals to fulfill. Yes, he had to pay off his debt (and he eventually did), but he also had a young family to feed. He didn’t have the option of sitting around and dreaming about manifesting wealth!

Have you successfully monitored your thoughts and beliefs, and implemented action steps at the same time? What has worked for you?

Are You Making Fear-Based Decisions?

Bruce Schneier knows what scares people, and why people make fear-based decisions.

He’s a specialist in security technology. I heard about him a few years ago, because of a contest that he sponsors: He challenges people to come up with a cybersecurity movie plot with a fear factor to attract audiences.

Fear sells.

In an NPR interview from a few years ago, Schneier offers some examples of real products created to solve what are essentially nonexistent hazards. A wearable personal air filter. Mobile phone radiation shields.

Examples of this fear-based marketing are everywhere. In “The War of Art,” author Steven Pressfield writes about his stint as an advertising copywriter.

“Our boss used to tell us: Invent a disease. Come up with a disease, he said, and we can sell the cure.

Attention deficit disorder. Seasonal affect disorder. Social anxiety disorder. These aren’t diseases, they’re marketing ploys. Doctors didn’t discover them, copywriters did. Marketing departments did. Drug companies did.”

Pressfield goes on to acknowledge that conditions like anxiety and depression can be real. However, we’re so inundated with messages about fear and negativity that it’s difficult to discern what’s real and what’s a marketing scheme.

Think you’re a savvy consumer, and that you’re immune to these advertising scare tactics? Think you’re not making fear-based decisions?

Be aware: The news media uses the same tricks to pull you in. One of my favorite examples these days is the Fiscal Cliff (!!!) scare of late 2012. Remember that? Probably not, because as I write this, in early 2014, that particular panic has been long forgotten, in favor of the debt ceiling, what new Fed chair Janet Yellen will do, and, of course, Obamacare. And with reporters and editors getting back to work in earnest this week after the holidays, there are sure to be some fresh scares created to draw eyeballs to TV screens and Web pages.

For Baby Boomer women, there’s no end to the scares about health conditions, crime statistics, or any other largely made-up news stories. The media knows its audience.

In Bruce Schneier’s NPR interview, he discusses fears being exacerbated in the modern era via technologies like the Internet and 24/7 news cycles, which devour fresh content like my dog cleaning out her food bowl.

“Because of technology and because of the media, things that happen in stories don’t necessarily reflect the world around us. So there might be a movie about a tiger, or a better example would be a shark, and suddenly we’re afraid of them because we’ve heard the stories, but they’re not real stories. They’re made-up stories,” he said.

And even when they stories are true, media hysteria – crafted to attract viewers – distorts the statistical probability that any of us will actually be victims of any given event. For the most part, news stories, whether online, on TV or in print, are chosen because they are interesting and perhaps sensationalistic, not because they have any true “informational” bearing on your life.

Remember the “Summer of the Shark” in 2001? Although there was not really a significant increase in the number of shark attacks that summer, the media hyped them because there weren’t many other big stories in July and August of that year. It was a textbook example of media distortion, emphasizing emotion over statistics.

And people made fear-based decisions because of these hyped reports. People suddenly believed the beaches were completely shark invested.

I’m on a mission to point out media hyperbole, and how it contributes to people’s poor decision making. In my line of work, I see media-driven decisions all the time. In particular, media aimed at Baby Boomer women often exacerbates the knee-jerk reaction of making fear-based decisions.

Does non-stop coverage of the latest Congressional dust-up have you terrified that the U.S. economy will implode? Then the well-coifed anchorman has done his job. He doesn’t care if you make a panic-driven mess out of your investments; he’s been paid just to scare you.

Think about that next time you decide to make changes in your portfolio, based on trending news stories.

Oh – and especially for you, Baby Boomer women: Keep in mind that the media knows very well how to press your panic buttons. Resist! Resist!

You Need A Plan – Even If You Think You Don’t

The word “planning” scares a lot of people.

I understand. In a general sense, it can suggest that you’re removing spontaneity, those unexpected events that can become life turning points, lifetime memories or a lucky break.

None of us want those taken from us.

And planning – when done correctly – doesn’t remove those possibilities.

You’ve probably had times in your life – maybe you’re in one now – when you’ve felt completely overscheduled, as if every waking minute was planned. We know where that leads: burnout.

That’s not the kind of planning I mean.

Let me zero in on one form of planning, the kind we do in my line of work. We do financial plans for clients who want to achieve certain life goals. Overwhelmingly, that means enjoying a comfortable retirement and having money to pursue activities like travel or specific hobbies.

What pops into your mind, when you try to imagine financial planning? (OK, for some of you, I know that imagining financial planning is a step down from imagining root canal – but work with me on this.)

Most of the time, planning isn’t budgeting; or, at least, it’s not limited to budgeting. At its heart, planning is the process of discovering how you will achieve your goals.

And this is where financial planning and life planning converge. For most people who are firmly grounded in the 21st century, “retirement” simply means the ability to do what you want to do, whether that’s spend time with the grandkids, devote yourself to volunteer work, or launch a new business venture without the pressure to produce immediate income.

The word “retirement” carries some baggage: If you retire, the law requires that you move to Florida, start wearing stretch-waistband pants, and complain about your health during your golf, shuffleboard and bingo games.

Hard to imagine why anyone bristles at the word retirement, isn’t it? (For the record: I actually love Florida, but in that particular scenario, it sounds as depressing as a Soviet gulag.)

Maybe retirement-as-preparation-for-death was a scenario people planned for in the past – I really don’t know – but it’s not something I’ve personally seen, when it comes to actual client goals.

I’m using the example of retirement because that’s what comes up most often in the financial planning situations I’ve observed.

But any type of goal you want to achieve requires planning, and that almost always includes money: How will your objective be funded? That’s true if it’s a plan to quit your job and become an entrepreneur; switch jobs to something that you enjoy more but may pay less; or fulfill a dream of becoming a stay-at-home mom.

Planning is not about removing spontaneity and serendipity from your life. It’s more like a compass to guide you, than a fence to keep you contained.

I’m at a point in my life where this lesson is especially relevant. If I say a particular objective is important, yet I don’t put any time into it on a regular basis, then I have to ask a few questions. How important is it really? What’s preventing me from investing the time and effort to attain this goal?

There are a couple areas of my own life where I’m asking myself these questions, areas where I think I want to make changes, but so far, I’ve been haphazard, at best, when it comes to spending time and implementing new habits.

Most of the time, the things we really want don’t “just happen.” Even the use of affirmations and positive thinking techniques – which are useful, but must be paired with action – require a little time and focus!

So this is where a bit of planning becomes necessary. In his awesome program, “5 Days To Your Best Year Ever,” Michael Hyatt emphasizes the practical step of putting important actions on a calendar.

“If it doesn’t get on the calendar, it’s probably not going to happen. You’re not going to probably accomplish it in the leftover time you have every day because if you’re like me, you don’t have leftover time. You’ve got to schedule it. You’ve got to make a commitment and keep it.”

I know that’s often easier said than done – but that’s exactly the point! If you’re like me, you need a plan of some sort. Otherwise, you’ll find yourself meandering through life. And rather than resulting in carefree spontaneity, it often leads to regrets and bitterness.

I have no desire to be one of those compulsively over-scheduled people. But I also realize that it’s mentally, physically and emotionally unhealthy to be that person who comes home from work, scarfs down some convenience food because it’s quick and easy, and settles in for a night of TV.

And for the record: I’m far from being the poster child for exemplary habits. But I’m on a mission this year to follow Hyatt’s advice, and regularly allocate time and attention to the goals that I claim are important!

That’s my planning process for 2014, and one of the functions of this blog will be to keep me accountable!

How do you approach the process of planning to achieve your goals?

 

Ride The January Wave

Facebook has become an excellent gauge of the zeitgeist of any given moment.

(Yeah, I know: Zeitgeist. What can I say? I lived in Innsbruck, Austria for a year and studied German for five years in high school and college. Don’t ask me to speak it today. The best I can do is throw around words like “zeitgeist.” Jawhol.)

I noticed several people on Facebook complaining about January. That took me by surprise. I love January! It’s a ready-made opportunity for a fresh start.

Is it a bit contrived, a re-set button imposed by the Gregorian calendar? Of course! But who cares?

This week, I launched a column for the Santa Fe New Mexican called “Your Money.” (And yes, my editor Bruce Krasnow wanted to begin the feature in January! Not that I wouldn’t have started in any other month, but he, too, saw the clear opportunity for a new beginning.)

In the initial column, I wanted to put the smackdown on the current fad of rejecting New Year’s resolutions. We live in a pretty cynical age, and one effect has been to reject calendar-based vows to transform ourselves.

Sure, such efforts can seem naïve. “I’m going to lose weight this year!”  Right, you and 190 million other overweight Americans. Good luck with that.

No, I am not contradicting myself by going all cynical on you. But I am pointing out that vague resolutions are almost always doomed to fail. Be specific about what you are hoping to achieve? Twenty pounds by December 31? Great! Now break it down into smaller milestones.

One of the books that inspired me in 2013 was Jon Acuff’s “Start: Punch Fear in the Face, Escape Average and Do Work That Matters.” The title is fairly self explanatory. We have control over the starting line.

January is a great time to start. There’s momentum now that’s harder to find at other times throughout the year. Take advantage of that momentum to accomplish some of your goals.

Go. Now. Get started!

 

 

 

Fear Sells

Bruce Schneier knows what scares people.

He’s a specialist in security technology. I heard about him a few years ago, because of a contest that he sponsors: He challenges people to come up with a cybersecurity movie plot with a fear factor to attract audiences.

Fear sells.

In an NPR interview from a few years ago, Schneier offers some examples of real products created to solve what are essentially nonexistent hazards. A wearable personal air filter. Mobile phone radiation shields.

Examples of this fear-based marketing are everywhere. In “The War of Art,” author Steven Pressfield writes about his stint as an advertising copywriter.

“Our boss used to tell us: Invent a disease. Come up with a disease, he said, and we can sell the cure.

Attention deficit disorder. Seasonal affect disorder. Social anxiety disorder. These aren’t diseases, they’re marketing ploys. Doctors didn’t discover them, copywriters did. Marketing departments did. Drug companies did.”

Pressfield goes on to acknowledge that conditions like anxiety and depression can be real. However, we’re so inundated with messages about fear and negativity that it’s difficult to discern what’s real and what’s a marketing scheme.

Think you’re a savvy consumer, and that you’re immune to these advertising scare tactics?

Be aware: The news media uses the same tricks to pull you in. One of my favorite examples these days is the Fiscal Cliff (!!!) scare of late 2012. Remember that? Probably not, because as I write this, in January 2014, that particular panic has been long forgotten, in favor of the debt ceiling, what new Fed chair Janet Yellen will do, and, of course, Obamacare. And with reporters and editors getting back to work in earnest this week after the holidays, there are sure to be some fresh scares created to draw eyeballs to TV screens and Web pages.

In Bruce Schneier’s NPR interview, he discusses fears being exacerbated in the modern era via technologies like the Internet and 24/7 news cycles, which devour fresh content like my dog cleaning out her food bowl.

“Because of technology and because of the media, things that happen in stories don’t necessarily reflect the world around us. So there might be a movie about a tiger, or a better example would be a shark, and suddenly we’re afraid of them because we’ve heard the stories, but they’re not real stories. They’re made-up stories,” he said.

And even when they stories are true, media hysteria – crafted to attract viewers – distorts the statistical probability that any of us will actually be victims of any given event. For the most part, news stories, whether online, on TV or in print, are chosen because they are interesting and perhaps sensationalistic, not because they have any true “informational” bearing on your life.

Remember the “Summer of the Shark” in 2001? There was no significant increase in shark attacks that year, but the media hyped up the ones that occurred, because there weren’t too many big news stories in July and August of that year. This was a textbook example of media distortion, emphasizing emotion over statistics.

I’m on a mission to point out media hyperbole, and how it contributes to people’s poor decision making. In my line of work, I see media-driven decisions all the time.

Does non-stop coverage of the latest Congressional dust-up have you terrified that the U.S. economy will implode? Then the well-coifed anchorman has done his job. He doesn’t care if you make a panic-driven mess out of your investments; he’s been paid just to scare you.

Think about that next time you decide to make changes in your portfolio, based on trending news stories.

You Won’t Always Feel This Way

One of the most stressful and chaotic activities – in North America, anyway – is moving. Not to have one of those pity parties about so-called “first world problems, “ but I’m in that mode right now where things are surrounded by boxes and my little world is askew.

However you feel now, you won’t always feel this way.

It’s easy think things will always be like this. Times of transition are difficult, and our human brains tend to believe that the way we feel today is the way we will always feel. There’s a term for this: Affective forecasting, which predicts how we will feel in the future.

Affective forecasting

image by ibiblio.org

We all run into this issue. A friend of mine feels trapped in her current situation, but can’t seem to understand that change is inevitable. No matter what, her current situation will change, in one way or another.

As for me, I got momentarily stuck believing that the chaos generated by my current move would be indefinite. Of course, that’s nonsense, unless I randomly decide to live the rest of my life pulling items from boxes, rather than putting them away somewhere.

Whether we like it or not, change happens. And that also applies to the way we feel about our life circumstances. If you feel discouraged about something today, or can’t understand how your situation will ever change, that feeling likely won’t last until some date way out in the future. Future events do have an effect on our emotions, but not necessarily in the way we believe they will.

Likewise, today’s feeling of being overwhelmed, surrounded by packing boxes and chaos also won’t be the way I feel in the future – hopefully! Remember: You won’t always feel this way.

It helps to remember this when we feel that life’s events are spinning around us, and that the chaos will never end. Rest assured, it will. Change is inevitable, and something else will replace it.

True Confession: I Haven’t Been Honest About What Really Matters

So I haven’t been honest.

Not that I’ve lied – not exactly. More like omitting the truth.

Well, that’s not exactly true, either.

It’s more like this: I wouldn’t allow myself to see the truth. I’m not playing word games. I’m struggling to share what really matters, what’s important to me, instead of the noise I’ve been guilty of promulgating for so long.

For many years, I did videos, taught seminars, wrote articles and even hosted a radio show – all on the topic of stock trading. I was pretty good at it. I developed an expertise about a slew of trading rules, and I would frequently get comments that I had a knack for explaining difficult concepts in a simple way.

But gradually, something began to gnaw at me. I saw plenty of people desperate to make some more money to fund their lifestyles, or achieve some goal. But they were all grasping at something – a quick fix via a leveraged ETF, a perfect cup-and-handle chart pattern, the right thesis about what gold will do today.

Even as I write that, the sense of desperation jumps off the page. I couldn’t really articulate it at the time, but I had an underlying sense that absolutely none of that had anything to do with the real objectives people were trying to achieve in their lives. I was a somewhat well known person within the stock-trading universe, but I couldn’t shake the feeling that I was contributing to a vicious circle of ego-based commotion, rather than giving people anything they needed to navigate changes in their personal situations and even changes in market conditions. (Although the purveyors of stock-trading systems will claim they address changes in market conditions, all they actually offer are short-term fixes, light years removed from an actual investment philosophy tied to any sort of financial plan.)

I haven't been honest

image by juanmarketing

So while I was busy trying to craft messages on identifying single stocks with the moving-average proximities, or strong upside momentum, my friends and acquaintances outside the little bubble of Trading World didn’t really understand what I did – nor did they find it particularly relevant to their personal situations.

That became clear in 2011. I was part of the Speak It Forward mastermind coaching program offered by Kent Julian, a phenomenal speaking coach and marketing genius.

The participants met twice that year near Kent’s home outside Atlanta. Each person would stand in front of the group – about 10 or 12 people – and explain the message he or she was trying to craft into a speaking presentation. Some people had it nailed: Jeff McManus, through his humor and storytelling, actually managed to get me interested in gardening and landscaping!

But my message was still murky and muddled. And that’s because I was still immersed in a niche that felt a little bit dubious. At the time, I was writing a column about stock trading for MoneyShow.com, hosting a radio show about small-cap trading, and publishing a trading newsletter.

But deep down, I was starting to get a sense that my focus was merely pandering to the worst emotions surrounding money: Fear and greed.

So naturally, I got puzzled looks when I made an attempt at some talking points that I was hoping to craft into a speech. Of course, because I had doubts about the integrity of my own message, there was no way I could form a diamond out of some of mish-mashy lump of stock-trading coal.

The light bulb moment came after I sat down. During a break, a couple of my peers started asking about the mutual funds in their retirement accounts. Could I recommend investments? Did I know if their current investments were sound?

No!! I could only tell them if a double-bottom-with-handle pattern was flawed, or if they should sell shares of Green Mountain Coffee Roasters because there was heavy volume as it sliced its 10-week moving average.

In other words, I had zero useful information. Nothing that would help people with they really wanted to know: Were they on track to retire? Were their investments achieving the right purpose?

But, hey forget about that! Look at this nifty three-weeks-tight pattern.

Yeah, right.

When I returned home from that session, something kept bugging me. I knew I couldn’t tell an audience looking for real answers about their personal situations to “Just look for ascending bases! You’ll be fine!”

Throughout my work with Kent and my colleagues in the mastermind, I couldn’t formulate the right message – and it was through no fault of anyone else’s! Kent gave me some awesome tools to work with – but the building materials weren’t there. I didn’t have a philosophy that anybody could identify, that would actually create calm and clarity. Instead, it was creating the opposite – anxiety! Did I buy that stock too late? Did I sell as it sliced its moving average? Was that double-bottom pattern flawed?

To be honest, I feel anxious just writing those last few sentences.

And that’s the idea. It began to dawn on me that stock-trading systems are not sold to create calm; they are sold to stir up fear. Often, they pander people who haven’t saved enough in their working years, and now feel panic-stricken about making up for lost time. They also appeal to hobbyists who have a sense of competition about “beating” some benchmark – although often these so-called hobbyists are also anxious about not having enough in their retirement accounts, but mask the anxiety with a lot of big talk about moving averages, chart patterns and oscillators.

It’s not that different from weight-loss products, which are marketed to an entirely different demographic, but which also play on people’s fears.

But just as quick weight-loss products ignore overall wellness, and, in fact, can be detrimental to good health. Similarly, stock trading, even when it masquerades as “investing,” has nothing to do with financial fitness, and is generally counterproductive when it comes to achieving anything remotely close to calm and clarity.

So this blog is dedicated to what matters. It’s definitely not about this stock or that one. Truly, that doesn’t matter. Not one bit. What people hope to do with their lives – that’s what matters. So rather than worrying about quick fixes or sophisticated-sounding trading strategies (which are really not sophisticated at all), I’m learning about what makes people tick, what goals they hope to achieve, and finding out how I can help them get there.

I’m more excited about this journey than I ever was about trading. Because now that I realized that I haven’t been honest, I feel free to move on to a journey of true self-discovery.

Questions for you: Do you get distracted by products and services that play on your fears? They’re often cleverly disguised to make you feel like a sophisticated buyer, but have you ever

It’s Not Different This Time (And It Never Is)

It’s faddish these days to obsess about all the geopolitical and economic worries that have potential to crash world equity markets.

As I write this, the U.S. government is “shut down” (selectively, anyway, to prove political points). The debt ceiling limit deadline is just a few weeks away. Headlines validate your worries: “Why Investors Should Fear October 17.”

I don’t know about the rest of the world, but Americans have a penchant for believing “it’s different this time,” whatever the situation.

That phrase can even have a positive connotation. I finished business school in 1999, the height of the dot-com boom. Companies with no earnings – and in some cases, no revenue – were not only going public, but soaring to lofty levels. Jobs were plentiful, as startups were snagging venture capital and staffing up quickly.

Yes, I recall many conversations about how “it’s different this time.” The whole zeitgeist went something like this.

Of course, it wasn’t. Revenue-less companies began to implode, U.S. equity markets topped in March, 2009, and, of course, 9/11 created a whole new set of uncertainties.

So no, the endless optimism of 1999 did not portend anything different. It was just the end of a bubble.

It’s not different this time, either. U.S. politics have been polarized before, many times. Students of history know that many of the founding fathers couldn’t stand one another.They just didn’t hold press conferences to insult the other guy, and reporters weren’t following them 24/7, ready to hang a parchment on a tree with the latest update on the squabbles.

Believing the end is nigh is nothing new for Americans, although many of the death-knell catalysts of the past 100 years have been forgotten. Here are just a few:

  • 1917: Woodrow Wilson nationalizes the railroads.
  • 1944: Franklin Roosevelt orders the seizure of department store Montgomery Ward.

Woodrow Wilson

  • 1952: Harry Truman seizes U.S. steel mills.
  • 1971: Richard Nixon issues a 90-day wage and price freeze (which stretches out to 1,000 days).
  • 1993: Bill Clinton takes office and noted Morgan Stanley partner Barton Biggs recommends moving assets overseas because the new president would be “a negative for the U.S. market.” Using the S&P 500 as a proxy for U.S. stocks, investors saw an inflation-adjusted, real return of 14.2% between January 1993 and December 2000. That’s not exactly what anyone would call “negative.”
  • 2009: Barack Obama takes office, and half the country believes the End Times are upon us. Again, using the S&P as a proxy, U.S. stocks delivered a return of 12.1% between January 2009 and December 2012.

Still think it’s different this time?

I know plenty of conservatives who have kept their money in cash since 2009, out of fear that Barack Obama would confiscate it all. That’s worked out well, hasn’t it?

Markets operate efficiently. There’s plenty of research to show this. In fact, check out these remarks by Gene Fama, a noted professor at the University of Chicago and consultant to Dimensional Funds.

But when an event like 2008 occurs, it’s not easy to believe things will ever recover. I remember thinking that myself, although I was steeped in an active trading mentality at the time, and was dismissive of the Efficient Markets Hypothesis. My bad.

Also: It’s easier and more fashionable these days to be a worrier and a pessimist. It sounds naïve to suggest that even our inept “leaders” (a little sarcasm there) in Washington can get their act together and come to an agreement on questions like the debt ceiling, or to believe that myriad geopolitical events won’t mean the end of the world as we know it.

But history has proven the naysayers completely wrong. Over time, markets go up. Active fund managers have horrible track records of consistently meeting their stated benchmark, never mind beating them.

So what does that mean in practical, financial-planning terms? It means that you are hurting yourself by letting your worries and opinions get in the way. History is not on your side, if you insist on believing that “it’s different this time.” Ronald Reagan and Franklin Roosevelt both ran up the national debt during their presidencies.

As the old saying goes, history may not repeat, but it sure does rhyme. But if you don’t have any kind of financial plan for yourself or your family, then keeping the money under the mattress while you wait for that “perfect moment” is as good a strategy as any.  But good luck timing the market absolutely correctly, and in identifying that perfect moment in time when all the stars align, the world is perfectly at peace, and, as the song said, there’s “more leisure time for artists everywhere.”

Image by cliff1066™