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Don't Listen to the "Noise!"

Don't Listen to the "Noise"--What You Should Really Do With Your Money

“Interest rates are rising—get your money out of bonds!”

“Start investing now in Frontier Markets!”

“Inflation will be out of control—trade your US dollars for gold coins!”

No, this is not my advice!  These are potential headlines that you may come across in any given week. We are inundated daily with news on the economy, the performance of the stock market, politics in Washington and throughout the world. On top of that, we have “financial experts” on networks, newspapers, and magazines offering their opinions on how each individual event will impact our current portfolios and what they expect the next great investments to be. When I was first approached to write this article, I feared my editor was seeking another financial Nostradamus prediction. Heck, even if I were wrong, with an interesting enough article, we could still sell magazines. Isn’t that what the networks, newspapers and magazines are interested in anyway?

In reality, investing for your financial future isn’t a get rich quick scheme. It isn’t about picking the hottest stock or market sector and then selling it to buy the next hot one. It isn’t about jumping at the chance to sell everything at the peak of the market and then buy again at the bottom. Of course, if we were capable of accurately predicting these patterns and by doing so guarantee how the market will perform to our advantage, we would, but the reality is that we are not gifted enough to see in to the future, and I don’t mean just you and me. I also mean the “financial experts.”

Investing is not about predicting; it’s about calculated planning, avoiding the pitfalls that most amateur investors make and applying sensible, well-informed guidance on how to make the most of your money. Surely you have many goals on your list, short and long term. You’re probably looking into retiring as soon as possible. Perhaps you want to see your children as Ivy Leaguers. You want to provide your family the home of their dreams or maybe you want to provide a legacy for your future generations. The way to achieve these and other ambitious aspirations begins with ignoring all the “noise” floating around us about the economy, politics, the market, etcetera. In the grand scheme of things that’s all this is – just “noise.” It should just be an insignificant blip on your radar when it comes to defining solid, long-term financial goals. Acting on this “noise” is the equivalent of gambling.

Ignore it all and life will be less stressful, and more importantly, it will prevent you from committing costly mistakes and making potentially disastrous financial decisions. Make a conscientious effort to apply this: When it comes to investing, you can’t let your emotions get the best of you. It’s obviously difficult to watch your hard-earned money disappear like magic when your investments decline.

Take the guesswork out and act upon it: Have a well-constructed financial plan. You can research as much as you can on your own and put it together yourself or – what I would advise – hire a professional to give you unbiased, realistic facts and figures addressing your goals and aspirations specifically and systematically. Write out your plan and stick to it during the good times and the bad times in the market. Your account balances will go up, and they will go down. Stick with your plan. The worst thing amateur investors do is overreact when the markets go south. Use 2008 and 2009 as your personal gauge. Did you sell as the market was crashing or did you stay the course? If you sold, as a lot of people did, your emotions probably played a big part of your decision process, and that is a major hurdle that needs to be overcome NOW. If you did sell, I sincerely hope you were able to reinvest in time for this incredible recovery that we have recently experienced. Better yet, maybe you didn’t sell at all AND you invested more as the market declined. That is what you should have been doing with an appropriately constructed plan.

Over the course of the next several issues, I will discuss what you should consider as part of your plan. I may even surprise you and say in some circumstances it is okay to be speculative and invest in things that you think will offer you superior returns on your investment. The important thing to emphasize is that when it comes to investing there are only so many things we have control over. These include taxes, risk and fees. The subsequent articles will focus on each of these and how they need to play a critical part of your financial plan.

In the meantime, do I know – with an adequate amount of certainty – how the market is going to behave in 2014? No. Does anyone truly know how the market will shift? No. Will a lot of people out there share or sell you their research, advise you decisively on what to do, and sound very convincing in the process of doing so? Yes. I encourage you to ignore it all. After all, as 2013 was rolling in, Congress was dealing with the fiscal cliff and debt ceiling. I am not aware of anyone who was forecasting the strong performance the US stock market would have in 2013. If you listened closely to the news a year ago, you probably did not invest heavily in US stocks unless you already had a well-constructed financial plan. Do NOT beat yourself up about this or any previous investment opportunity you may think you missed out on. Focus instead on the items that you can control and most importantly ignore the “noise”.