Gary Allen on Business, Sunday, January 17, 2016 – Podcast Now Available

Stock Market Jitters… Stock Market Predictions 2016… What To Do?

Bear Market

The New Year has not been kind to financial markets. In the back of people’s minds I sense fear of another meltdown like 2007-2009. Unfortunately, no has that answer until after the fact. That is why it is so important to make sure your investments are aligned to your individual circumstances. Depending on someone to time the market or to pick individual securities only adds to the level of risk you face. 

On the program this week, I cover the market downturn as well as the abysmal record of Wall Street and other financial professionals (United Kingdom and Australia) for predicting market returns. 

Since it is the beginning of the year, I do provide you with a list of 10 forecasts that I feel very comfortable about. These forecasts provide you with some of the reasons why it is so hard for market prognosticators to provide any value.

Finally in the last segment, I remind people to focus on what they can control and not to worry or focus on what you cannot. In this segment, I give you a sneak peek at a project we have been working on for a while. We feel that Wall Street and its beat the market mantra has led so many people down the wrong path. Hopefully, soon, we can let you know about a completely different path that should provide investors a better chance at success.

I hope you enjoy the program this week. – Gary

KNBR-logo

 

 

 

 

 

 

 

 

The Patience Principle – Surviving Rough Financial Markets

Market TumbleChina Worries Rattle World Stock Markets
The Patience Principle

“Surviving Rough Financial Markets”

Global markets are providing investors a rough ride at the moment, as the focus turns to China’s economic outlook. But while falling markets can be worrisome, maintaining a longer term perspective makes the volatility easier to handle. A typical response to unsettling markets is an emotional one. We quit risky assets when prices are down and wait for more “certainty.”

These timing strategies can take a few forms. One is to use forecasting to get out when the market is judged as “overbought” and then to buy back in when the signals tell you it is “oversold.”

A second strategy might be to undertake a comprehensive macro-economic analysis of the Chinese economy, its monetary policy, global trade and investment linkages, and how the various scenarios around these issues might play out in global markets.

In the first instance, there is very little evidence that these forecast-based timing decisions work with any consistency. And even if people manage to luck their way out of the market at the right time, they still have to decide when to get back in.

In the second instance, you can be the world’s best economist and make an accurate assessment of the growth trajectory of China, together with the policy response. But that still doesn’t mean the markets will react as you assume.

A third way is to reflect on how markets price risk. Over the long term, we know there is a return on capital. But those returns are rarely delivered in an even pattern. There are periods when markets fall precipitously and others when they rise inexorably.

The only way of getting that “average” return is to go with the flow. Think about it this way. A sign at the river’s edge reads: “Average depth: three feet.” Reading the sign, the hiker thinks: “OK, I can wade across.” But he soon discovers the “average” masks a range of everything from 6 inches to 15 feet.

Likewise, financial products are frequently advertised as offering “average” returns of, say, 8%, without the promoters acknowledging in a prominent way that individual year returns can be many multiples of that average in either direction.

Now, there may be nothing wrong with that sort of volatility if the individual can stomach it. But others can feel uncomfortable. And that’s OK too. The important point is being prepared about possible outcomes from your investment choices. Markets rarely move in one direction for long. If they did, there would be little risk in investing. And in the absence of risk, there would be no return. One element of risk, although not the whole story, is the volatility of an investment.

Look at a world stock market benchmark such as the MSCI World Index, in US dollars. In the 45 years from 1970 to 2014, the index has registered annual gains of as high as 41.9% (in 1986) and losses of as much as 40.7% (2008).
But over that full period, the index delivered an annualized rate of return of 8.9%. To earn that return, you had to remain fully invested, taking the unsettling down periods with the heartening up markets, but also rebalancing each year to return your desired asset allocation back to where you want it to be.

Timing your exit and entry successfully is a tough task. Look at 2008, the year of the global financial crisis and the worst single year in our sample. Yet, the MSCI World index in the following year registered one of its best ever gains.
Now, none of this is to imply that the market is due for a rebound anytime soon. It might. It might not. The fact is no one can be sure. But we do know that whenever there is a great deal of uncertainty, there will be a great deal of volatility.

Markets PictureSource: MSCI data © MSCI 2015, all rights reserved. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Past performance is not a guarantee of future results.

Second-guessing markets means second-guessing news. What has happened is already priced in. What happens next is what we don’t know, so we diversify and spread our risk to match our own appetite and expectations.

Spreading risk can mean diversifying within equities across different stocks, sectors, industries, and countries. It also means diversifying across asset classes. For instance, while stocks have been performing poorly, often bonds have been doing well.

Markets are constantly adjusting to news. A fall in prices means investors are collectively demanding an additional return for the risk of owning equities. But for individual investors, the price decline, if temporary, may only matter if they need the money today.

If your horizon is five, 10, 15, or 20 years, the uncertainty will soon fade and the markets will worry about something else. Ultimately, what drives your return is how you allocate your capital across different assets, how much you invest over time, and the power of compounding.

But in the short term, the greatest contribution you can make to your long-term wealth is exercising patience. And that’s where Prudent Investor Advisors and its investment professionals can help you.

DATE OF FIRST USE: SEPTEMBER 1, 2015
Past performance is not a guarantee of future results. Diversification does not eliminate the risk of market loss. There is no guarantee investment strategies will be successful. International investing involves special risks such as currency fluctuation and political instability. Investing in emerging markets may accentuate these risks. Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks, including changes in credit quality, liquidity, prepayments, and other factors. All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.

Prudent Investor Advisors, LLC is an investment adviser registered with the Securities and Exchange Commission.

Stocks Fall… Is It Time To Panic?

PanicStock markets around the world stumbled on Friday. Is this the beginning of the great correction that so many pundits have been calling for? Is it time to panic? The answer of course is nobody knows the future. However, you should be worried if you don’t have a prudent investment process in the first place.

There will always be bumps in the road that will rattle stock markets and investors alike. It takes a prudent investment process and discipline to remain calm and focused on your own goals. If you don’t have a prudent process, or if it is one built on speculation, then the odds are not in your favor.

On the show this weekend, we will chat about how to embrace an investment philosophy that allows you to stay invested through good times and not so good times. *** Also listen for a special offer for some new investment education materials.***

Tune in Sunday morning at 8 AM on KNBR 680 AM San Francisco for Gary Allen on Business.

On the show this weekend, we will chat about how to embrace an investment philosophy that allows you to stay invested through good times and not so good times.

Tune in Sunday morning at 8 AM on KNBR 680 AM San Francisco for Gary Allen on Business.

Gary Allen on Business – Sunday, November 30, 2014 – Podcast Now Available

How A Financial Fire Drill Can Save You

Financial Fire Drill In this program, I walk through the basics of a financial fire drill. The object of this exercise is to prepare you for bad financial markets before they happen. By doing this, you can protect yourself from making long-term investment mistakes based on emotion and short-term swings in financial markets.

Segment one is a journey down memory lane exploring the depth and length of the five bear markets that have occurred since 1970. By looking back into history we can begin to understand how financial markets behave during difficult times.

Segment two of the program continues our review of modern day bear markets and then near the end we make the transition to the emotional side of maintaining your investment discipline.

Segment three delves into the pressures and the anxiety one feels during these market downturns. Often there is pressure to do something as your emotions begin to chip away at your resolve. Finally, not helping matters at all is a constant bombardment of bad news mixed with a steady stream of folks selling you the story of doom and gloom. Also at the end of the segment you will find some bonus information about fixed income investing and how it fits into your portfolio.

Segment four is a short summary of what was covered along with a peek into our next show. You may be surprised about who is entering the financial self help industry!

It was the last day of the long holiday weekend with California enjoying a series of storms to open the holiday season. That is something to be very thankful for. I hope you enjoy the program.

KNBR-logo