Have You Heard The One About The "Fiscal Cliff?"

So that there's no shortgage of things to worry about, meaningless as they often are, we'll give you some advanced lead time to prep for the next problem dejour, the "Fiscal Cliff." 

It seems that the fiscal cliff is the collision of a number of policy changes that are set to take place in 2013 that are destined to be the next fiscal impediment. 

The attached article presents the facts rather susinctly I feel and it comes with one of the more noteworthy admonitions...ignore it when you hear it. 

This all flows so wonderfully well with an insight from last weeks blog by Larry Swedroe. In discussing the predictive capabilities of our world full of "experts" Mr. Swedroe noted: 

"One of my favorite sayings is that there are three types of investment forecasters: those who don’t know where the market is going; those who know they don’t know; and those who know they don’t know but get paid a lot of money to pretend they do. In other words, they are playing an entirely different game."

Read up on the Fiscal Cliff here, and be ready to ignore it when the media grabs this by the tail and starts running with it. 

Sounder investment decisions help to prevent this kinds of dooms day thinking. 

Do We Know We Don't Know?

It's a really good question and one which, evidentally, most people get wrong most of the time. 

The good news (sort of) is that the people that get it wrong are a lot more of the people than you think. 

We've been pursuing passive investment strategies now for more than a few years, knowing that we do in fact know. 

I love it when an article concludes with the comment: "Finally, it's my experience that the vast majority of investors don't even know what their returns have been relative to appropriate benchmarks. One reason is that Wall Street doesn't want you to know- if you did, you might stop making it rich. Another might be that the truth would be too painful, so investors themselves don't want to know. But you should know. Without such information, there is no way to know if your strategy is working."

In this great article, "On Magical Thinking and Investing" Larry Swedroe hits all the high notes. 

Read "On Magical Thinking And Investing" here. 

The New York City Marathon and Your Investment Portfolio

You can tell when there's a lot of misinformation when it could be a monthly blog topic and you'd never have to devise another one to write about again. 

As the markets start to improve, the flood of "the next bad news" has been surplanted by "the next best thing you can do." And, that's what the financial periodicals and websites are starting to spew out. There's all sorts of recommendations, buy high-dividend paying stocks (isn't it odd that right when tax rates are poised to increase that there'd be a recommendation to buy stocks who generate taxable distributions?) or go for "yield" to keep your income up (better known as the "straight-jacekt approach, it never works) or get entirely out of bonds and cash and put everything you own into stocks because "now is the time."

Every year, thousands of people run the New York City Marathon. Probably less than 1% of them are running it to win it. Everyone else, God bless them, is out there for some other much more personal reason, and that's exactly my point. 

The financial media (and way too many investors for that matter) come to a common worldview that what every investor is doing or must do, is to attempt to make as much money as they can at every turn of the market, irrespective of goals, timing to reach those goals or perhaps more importantly, the risk involved. Just like the marathon, most investors should be basing their investment decisions on more personal matters such as their lives, their financial security and their willingness to accept risk. Not on maximizing the return on their money at any cost. 

And, thankfully, most of the people that run the marathon with no hope to win it, still plan on winning. But they want to win something less newsworthy, but equally as valuable, their own progress in their heads and hearts. 

Winning takes on many forms. Losing money takes on one. When it's gone, it's gone no matter what the race may have felt like at the beginning. So why not focus on your goals not someone elses.