Don’t react to big tips, up or down

Many hands for research

I’m tired. Of listening to codswallop. I’m bored of listening to people trying to stand out by predicting the future.

I have, simply, read too many forecasts, too many predictions. I say this with a heavy heart, as I know I’ve got decades of my investing life left, where I’ll read thousands more.

On average, at any one time, I can usually find only slightly more people who will tell me that I must pin my ears back and buy now, versus doing the same trick with my ears, but sell.

“The market is oversold. Buy!” “The real correction is still coming. Sell!”

Are markets overpriced? Underpriced? Some incredibly smart people say one thing, then are quickly made to look like idiots within a month.

Anyone who makes predictions is entering into a dangerous game.

You want a really simple and measurable example? Look at footy tipping from the “experts” who played the game. Even when tipping a two-horse race, some of them are complete stinkers.

Market forecasting is harder because the results are far more variable than simply win-lose-draw when the final siren blows and there’s no premiership to end things. These experts are getting paid the big bucks. And they have to justify themselves.

But how are we supposed to react to them?

We shouldn’t. Certainly not wholeheartedly.

You can have your favourite commentators or economists, but even some of the ones I follow can contradict themselves with a change of heart, within just weeks of making a big prediction.

What happens if you acted on the first prediction and sold up? The markets then moved the wrong way and you’re having to reinvest having missed 5 per cent upside.

Unless investing is your full-time job, take the simple, long-term approach.

Your investing life should run, roughly, over the course of several decades. Start your first investment in your 20s. Continue to add fresh capital to those investments through the era of tin lids and mortgages, and keep investing up until the time you leave the workforce.

Even if you immediately begin drawing on your investments when you retire, you’re probably still going to be investing – at least managing your investments – for a few decades sipping cocktails in Kokomo.

So, if you feel a need to react to some commentary, or market events, then here’s how to do it.

Make small adjustments.

Add a bit extra to your investments when you’re convinced, by whoever you listen to, that markets are below par on value.

Perhaps take some profits by selling off some profitable picks, if your trusted prognosticators are telling you the market is over the odds.

But if taking the risk of selling and buying doesn’t interest you, or you simply don’t have time to stay on top of it all, then there is an easier way.

Just treat your investments like you do (or don’t) your superannuation.

Here’s how superannuation works. Every month (or quarter), your employer adds to your super. It just happens. It’s automatic. You will get the long term average of super investing in your chosen fund, simply because it is automatic.

Sometimes your money will drop into super and be invested when markets are a bit high. Other times it will happen when markets are off a tad.

Largely, your non-super investments should be the same – automatic. Take the emotion out of investing. Take the noise of the endless predictions out of it.

Investing is, or should be, a lifelong discipline or habit.

If you’re not going to take enough time to read enough to actively manage your investments – even half of those who do underperform – then stop trying to.

Go for an index fund. Add to it regularly. Set up a direct monthly investment.

Start with (pretty much) any figure you want, add whatever you’re comfortable with on a monthly basis, knowing that you can adjust it at will, and off you go. But make it a worthwhile sum.

It will also take many out of the “investing is too hard” mindset. So many people suffer investment paralysis. They want to invest, but are scared the market could crash when they do. Or they can’t decide what to invest in.

Don’t get paralysed. Invest for life. Through the ups and downs. It’s far, far, FAR, better than not investing.

Bruce Brammall is the author of Mortgages Made Easy and managing director of Bruce Brammall Financial. E:

Leave a Reply

Your email address will not be published. Required fields are marked *