WELCOME TO THE "REAL" STOCK MARKET
Get Educated - or Suffer
(Part 2 of 3)
Today, we continue our three-part series on a topic we feel is vital for any investor or financial advisor to understand. This is part two, and the final part will be delivered within a couple of days. If you missed part one, let us know by replying to this email, and we'll send it to you.
To summarize the key point of this series:
The 1980-2000 period was not merely the most unrelenting rise in stock prices we've seen in the past century - it was the only one!!! Large market swings are a bigger part of history than most of today's investors realize. If you simply recognize and acknowledge that the stock market's character is not what most people think it is, and set your strategy to accommodate that, you open the door to an ocean of opportunity. At the same time, you can in turn potentially use the stock market as a long-term risk-reduction tool!
On the other hand, if you ignore the implications of this, it could be a long, depressing, worrisome and frustrating trip from today to your ultimate financial outcome (note I did not say that outcome was a successful one). We are optimistic that as time goes on, a greater portion of the professional investment community and media will turn from bashing long-short mutual funds and fixating on investment fees and style purity to an understanding of exactly what we are talking about here: the stock market is a tool you use to achieve your intermediate and long-term lifestyle objectives. Setting up a portfolio is not supposed to be like joining a cult, where you commit yourself to an inflexible philosophy for the rest of your life.
The other striking conclusion from this: most investors are putting WAY, WAY too much thought, energy and emotion into what is happening in the stock market right now. Unless your time horizon is a week from next Thursday, you truly need to step back and do these five things:
- Figure out what you want in life/lifestyle from the potential long-term success of your investment portfolio
- Think about over what period you hope and expect to start to reach your financial milestones
- Determine to what extent you are willing to risk the achievement of your goals by betting that the next many years will be more like the 80s and 90s than the rest of the 20th (and start of the 21st) century.
- Do your homework to figure out what comfortable, sensible alternatives are available to the mainstream approaches to protecting and growing wealth. Those approaches have let many people down.
- Keep learning, keep seeking a better way to do this - or find someone who does it for you
Now, some will say that the investing public, especially in mature stock markets like the U.S., has been hard-wired to believe that asset allocation means buying long-only stock and bond mutual funds run by famous portfolio managers, and repeating to yourself "if I hang in for the long-term, it always turns out OK". They will say that Wall Street's education of investors over the past 25 years is too ingrained to reverse itself and open up to modern approaches to asset allocation and portfolio strategy. We respectfully disagree. Perhaps what we are writing today about how to approach and incorporate the stock market, and what we have practiced at Emerald for many years, will move toward being mainstream thinking during the next four years. We are optimistic about that, since we see changes occurring in our industry every day that affirm such thinking.
The information herein has been obtained from sources believed to be reliable, but Emerald Asset Advisors, LLC ("Emerald") does not warrant its completeness or accuracy. Prices, opinions and estimates reflect Emerald's judgment on the date hereof and are subject to change at any time without notice. Any statements nonfactual in nature constitute current opinions, which are subject to change. Projections are not guaranteed and may vary significantly. Further information on the firm and its advisory fees may be obtained from the firm's Form ADV Part II, which is available without charge upon request. Complete descriptions of all Emerald's products and benchmarks are available upon request.
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