Predictions are dangerous --- especially those about the future.
So why do so many people pay their hard earned money, and money which they could otherwise invest for the long term, to stock brokers and other so-called market experts?
Why do they pay to listen to these people who make their money by telling us mere mortals where the market is headed in the short term? Beats me.
Over the long haul, of course, the market will do well. But over the short term, who knows? Nobody.
So if you're a short term gambler and want to play the market for fun or profit, have at it. But if you're an investor, just know that nobody can predict the short term and that the long term is all that matters. Then act accordingly.
Not convinced yet? In that case, maybe We asked a palm reader and a market adviser how to handle our money is worth considering:
"Last week, the guy who created the Dilbert comic strip created a stir when he likened investment advisers to palm readers. We couldn’t help wondering: If the two professions are so similar, would they give you similar advice?
It goes without saying that Scott Adams’s comparison wasn’t meant as a compliment to financial pros. “The reason it is legal to open a palm reading shop is that the public understands it to be entertainment and not prediction,” Adams wrote on his blog. “You can buy investment advice if you want it, but not until you sign a document acknowledging that science says no one has magical stock-picking skills .”
With this in mind, I chatted with a midtown Manhattan palm reader about how I should handle my money (she wasn’t privy to the fact that I’m a reporter, so she’ll remain anonymous). Then I called Christopher Van Slyke, an investment adviser and founder of a wealth management firm in Austin, Texas (he did know that I was a reporter, and that his advice would be compared with that of the palm reader). Both were aware that I’m a millennial with a steady job.
The bottom line: The financial advice they gave me had an alarming number of similarities—though only one of them recommended using “The Force.”
Here are the details:
1. Where’s the market going — can we expect a correction or crash?
Palm reader: “No, I don’t feel that at all,” she said, because “that’s what my senses are telling me.”
Adviser: “I don’t know any of my clients who need their money like, next week,” said Van Slyke, founder of the firm WorthPointe. “So it’s irrelevant what the market is going to do in the short term. Yes, there will be a correction. I have no way of knowing when it is. Does it matter? No.”
2. Should I be an active or passive investor?
Palm reader: “You’re not good at taking advice,” she said. She added that her reading indicates I am the kind of person who should own my own business — meaning I am more suited to picking my own stocks.
Adviser: “There’s no evidence that anybody can outperform the market in the long run by trying to forecast the short-term prices. I do not see the case for active management,” Van Slyke said. Buying the whole market through indexing is “like The Force in Star Wars. Accept The Force.”
3. Where should I put my money?
Palm reader: I should buy stocks, and pick medium-sized companies rather than big companies, she said. “Right now, I think you should find something that’s going to grow your money. I don’t feel like Apple or Google will do anything big right now,” she said, adding that she’s not a stock picker and “this is just my psychic feeling about it and my psychic feeling toward you.”. . .
Adviser: “If I’m a millennial, I’m not interested in anything but stocks or equities,” Van Slyke said.... “I want to not trade much and hold it and keep adding to it.”
4. How much should I save for retirement?
Palm reader: I should put 15% to 20% of my money aside for investing and “just to have.” As for specifically retirement saving, I shouldn’t sweat it, even as I get older. . . .
Adviser: “If you can save 15% of what you make your entire life and put that into index funds and mutual funds, you’ll be just fine,” he said. “The key is to start doing that when you’re 18, 19, 21, 22, 23. Unless you want to make it hard on yourself and start when you’re older. What you’re trading for more beer and more partying is a secure future.”"
So do yourself a favor and develop the habit of setting aside part of your earnings early in life and investing that money in the shares of an S&P 500 Index fund or individually in the shares of a diversified basket of high quality companies.
That's the simple and best way for the vast majority of us to achieve financial security over the long haul.
In other words, don't pay financial experts for advice that isn't helpful. Keep the money and let it work for you instead of letting it work for the "expert."
That's because paying a "palm reader" to guess about the short term direction of stock prices isn't worth what it costs.
So save your money, invest it and watch the wonders of the rule of 72 come true.
That's the way to take care of the long term needs of yourself and your family. After all, it's your money.
That's my take.