My high school science teacher used to say, “The only thing predictable about the weather is that it’s going to be unpredictable.” This seems to hold true for the economy and the stock market as well.
Consider the following:
In a July 2, 2018, article that appeared in the ftJournal, nearly 50% of the economic experts polled believed the next U.S. recession would occur in 2020. Approximately 25% said it would happen in 2021, and the rest predicted a recession in 2022.
Bottom line: 100% of them don’t really know when the next recession will occur, and not one of them knows how the stock market will perform in the near-term.
Rather than trying to predict the unpredictable, we believe prudent people will tune out the “market noise,” and instead, practice the following investing principles. They will:
- Maintain an adequate cash cushion to help them weather market volatility
- Avoid investing in equities if they do not have a long-term time horizon
- Understand what their true risk tolerance is
- Avoid investing in anything they do not understand
- Seek advice from seasoned advisors who thoroughly understand their personal circumstances, values and goals
While this list might not be as exciting as listening to the “experts” on CNBC or the Nightly Business Report predict what they think will happen to the economy or the stock market in the near-term, we believe that adhering to these principles is the prudent way to invest.
