Let's address another investment-related question I received from a reader recently...
What are the trends of the stock market?
Going forward? I have no clue. Yes, seriously. And anyone being honest with themselves can't answer that question any differently. To do so would require you to be able to see the future which, contrary to popular belief, is not the same as guessing and being right.
Historically speaking, the stock market has tended to go up and down but has been up more than it has been down. This is why so many people continue to attempt to build their wealth by investing in it.
This question is often driven by our natural tendency to seek certainty in our lives. The thought is that if we know the trends of the stock market that we can somehow successfully navigate them. The problem with this logic is that nothing is certain and there is no guarantee that the markets will behave in the future as they have in the past.
The best way I know to navigate the trends of the stock market, whatever they might be in the future, is to select an investment strategy that is goal-based, rather than return-based. When your investment portfolio is positioned to take on the least amount of risk that still gives you the best chance of achieving or exceeding your specific goals, it becomes easier to tolerate the ups & downs of the market. If your only barometer for your investments is a certain rate of return, your investment choices are much more likely to be driven by your emotions – both fear & greed. This is a dangerous path as your decisions could have a serious impact on your future well-being.
So how can you move from return-based investing to goal-based investing?
Begin by looking at your investment portfolio and asking yourself, “Why?”.
Do you know why are you invested this way? Perhaps it's because you want to make a lot of money. Well, why do you want to make a lot of money? Probably so you can retire comfortably some day, send your kids to college, and enjoy your life along the way. Does that sound about right?
You need to get real clear about what your specific goals are, how you would prioritize them and what adjustments or trade-offs you're willing to make to increase your chances of making them a reality. Once you've done that, how you need to invest starts to become clear.
Navigating the unknowable trends of the stock market becomes easier when you know your investments are set up to give you the best chance of meeting or exceeding your specific goals with the least amount of investment risk necessary.
If you want to discuss your investments or learn more about goal-based investing, pick a time from my online calendar and we'll have a conversation.