Not only is volatility normal, it is necessary for generating outstanding long-term returns. Volatility has returned with a vengeance in 2020 with the coronavirus impacts and the uncertainties that were already prevalent in the markets. Investors who abandon their plan to chase a “winning investment” will have lower long-term returns than investors who stick to their plan. their reaction to volatility) will have a better investment experience than those that focus on what they can’t control or predict (i.e.
Investors that focus on those things they can control (i.e. You will be tempted to abandon your plan at some point based on expert forecasts and/or short-term market performance. No one will be able to predict what will happen, but it will all seem obvious in hindsight. Investors who watch the market often will experience more stress and greater unhappiness than those who don’t. The economy/market will do something that surprises us. He’s been imparting market forecasts for years, and in his words, “They have an accuracy rate of close to 100%.” I’m in complete agreement. I love to read Mickey Kim’s articles in the Indianapolis Business Journal. This thinking doesn’t improve accuracy, only the perception of accuracy. So, we subconsciously latch on to forecasts, especially confident ones that confirm what our preconceived thoughts have planted in our brains. When we don’t know what the future holds, we really can’t plan with any certainty.
Humans find a great deal of security and happiness in the ability to plan. So why are we still mesmerized by forecasts? Would I base my next financial decision on the chance that Wilt, even if he averaged over 30 points per game for his career, would make his next free throw? No way. It’s astonishing to think the same man who scored 100 points in a single game is one who ended his career with a 51.1 percent FT shooting percentage. Many people forget just how bad Wilt “The Stilt” Chamberlain was at free-throw shooting due to his overall dominance. I’m a huge basketball fan, and there are stats in the sport that surprise me. Why are market forecasts so alluring to investors? Particularly when there’s reliable evidence that confirms market forecasts are only accurate 50% of the time? Would you trust a doctor who’s diagnosis was only correct 50% of the time? Likely not. But how do we view them through an accurate, healthy lens? We All Crave Security (Even Perceived) Amidst the chaos, many prognosticators are making predictions and forecasts. This is especially true as we ride the rollercoaster of large percentage swings in the market. Our firm belief? That carefully diversified investments and consistent saving habits are key ingredients to building adequate assets for retirement. At Servant Solutions, our Church 403b Retirement Plan has provided quality investment choices for a number of years.
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