“In some ways, predicting the economy is even more difficult than forecasting the weather, because the economy is not made up of molecules whose behavior is subject to the laws of physics, but rather of human beings who are themselves thinking about the future and whose behavior may be influenced by the forecasts that others make.” - Ben S. Bernanke, Chairman of the U.S. Federal Reserve (2006-2014)
There’s only one thing that’s certain about the future of the economy…Bernanke was right! We still don’t know whether our economy is going up, sideways, or down. Because of COVID-19 and current energy prices being in the dumps, the permanent effects on our economy are uncertain. But there is one thing no one is talking about…
Capitalism is alive and well in America. If you believe in capitalism, then down is still good when it comes to investing. In fact, if you believe in capitalism, you should be excited as an investor today. Arguably the greatest investor of all time, Warren Buffet tells us, “Be fearful when others are greedy and greedy when others are fearful.” In laymen’s terms, don’t let your emotions get in the way and stick to your disciplines—buy low and sell high.
You may be saying… “but I am retired.” Just because you’re retired doesn’t mean you can’t still live by the Buffet principle. In fact, it’s critical to have a disciplined investment plan in place that works for you and continues to buy into the market during retirement. Confused? Check out Buy Low: Sell High—Great Advice, but Is It Really Possible? in our online learning center at: www.kennedy-financial.com. With that said, there is another discipline you must remember to keep: diversify risk. Like the tech bubble, far too many people had far too much invested in energy.
Though diversification can’t protect against loss or guarantee any gains, proper diversification can address an array of risk. We have found that too many investors - and, believe it or not, advisors - take a very passive look at risk. Because there are so many types of risk, most people don’t understand what or how much they are actually taking.
It is important to understand the various types of risk and diversify those risks in the same manner that most advisors diversify a portfolio through asset classes. Each sector, region, cap, and style impose its own inherent risk. If you ignore the political, regulatory, business, systematic, nonsystematic, interest rate, currency, or inflation risk; that exact risk could be the one that ends up biting you.
Last, there is a little something that will stand the test of time no matter what outcome we face with COVD-19…discipline itself. Ask yourself these things:
- Do I have a disciplined plan to help me reach my goals?
- Am I sticking to the disciplines within my plan?
- Does my current plan or lack thereof keep me awake at night?
Besides money, what do Michael Jordan, Bill Gates, and Warren Buffet have in common? The answer is discipline. They didn’t reach success by making emotional decisions or by making decisions based on what the media was telling them how they were doing – whether they were up or down. They reached success by following their disciplines.