The Crystal Ball

Every so often we get asked by our clients or prospective clients which direction the market is going to go. This is always and entertaining question to get – and some of our “regulars” already know the answer.

Having a bit of a sense of humor (albeit dry sometimes) I’ll joke with clients and tell them that the day they handed out crystal balls in my investment class, it was the one time I called in sick – and you only get one chance at the coveted crystal ball. Thus, I forever lost the opportunity to predict the future of the markets. Darn.

Inevitably, clients laugh and understand the joke – and take away the underlying theme of the jocularity – that we can’t predict the future, especially in securities markets. But this doesn’t mean we can’t plan ahead.

So why do we invest? Why do we save for retirement? Why do we plan for the future? The reason is this: while we can’t predict the future, we can certainly have a great idea of where we are going and where we want to be. We understand that over the long run, it’s likely that our nest egg and the contributions to it over the years will grow, so that when it comes time to retire and actually live the future that we planned for; it’s livable and enjoyable. This is why we plan ahead and this is why people seek out financial planners.

Of course, there are always the worriers and naysayers that say, “What if the market crashes?” “I don’t want to lose all of my money.” “What happens if the market dips next week?” To which the answer is, “Well…what if it does? So what?” A good planner would never put immediate or near-term money at substantial risk.

An appropriate plan and an appropriate planner will take the time to discuss your strategy, goals and based on your aptitude for risk – will properly allocate your investment assets so that fluctuations won’t wipe out your savings.

We can tell you that the market will tank, and the market will recover. And that’s why based on an individual’s plan we allocate and manage accordingly. So, technically we can predict the future (as could anyone in this case), we just can’t tell you the exact dates crashes and recoveries happen (if that were the case, there’d be no need for financial planners).

Another way to think about it is this: your doctor may tell you to eat right, exercise, don’t smoke or abuse alcohol to preserve longevity. The plan is for you to live longer. That being said, you’re still going to get a cold or the flu (analogous to small market dips) or you may get seriously injured in an accident (analogous to a market crash – pun intended). But you (and the market) will recover. We can’t predict when you’ll get a cold or be in an accident or how long recovery will take, but we can plan accordingly.

In an absolute worst case scenario, you could die prematurely (analogous to the financial markets collapsing like a dying star). But overall, we take our doctor’s advice because we’re planning to live a long and happy life. The same is true with professional financial advice. Anything can happen, but we plan for the future.