Uncertainty and Your Portfolio

I just recently had a conversation about the economy and markets with an investor. The particular topic we discussed was something that seems to rear its head quite often: it was about uncertainty.  Uncertainty on how much you should invest, uncertainty about profits, losses and the future of the market. In fact, it really is the fear of uncertainty that is most concerning to investors.

With that being said, I would contend that for capital markets to work, and to be rewarding, there has to be uncertainty in the market place. The question would be how are you going to let uncertainty affect your investment plan?  You can try to debate the market implications of news, with research that you or someone else does, and try to anticipate what might happen next.  But who do you believe and what do you do with all the information?  We have seen sound arguments for multiple scenarios, which only creates more confusion and stress.

An alternative approach is much simpler. It begins by accepting the market price as a fair reflection of the collective opinions of millions of market participants. So rather than betting against the market, you work with the market.

Of course, this doesn’t mean you can’t take an interest in global events that could financially impact you. But it does spare you from basing your long-term investment strategy on the illusion that somewhere, at some time, “CERTAINITY” will return.

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