The Truth is "I Dont Know"

Above is from the brillant Ally Bank commercial.

Below is a quote from the 1940 investment book "Where are the Customers Yachts"

For one thing, customers have an unfortunate habit of asking about the financial future. Now if you do someone the signal honor of asking him a difficult question, you may be assured that you will get a detailed answer. Rarely will it be the most difficult of all answers - "I Dont Know"

The lesson is that as much as we crave AND PAY for financial prognostications. In the long run, we really dont know. In fact, what we do know is embedded in the price of the security. In other words the expected is built into the price. The problem comes when the expected fails to happen. Then we have volatility in our investments.

I am often confronted by investors that think that if they pay high expenses to large firms they will get some insight into the future. Unfortunately, after all their charts and graphs and analysis they do not prove to know more than the market as a whole. And, after the fees for the crystal ball gazing, the big firms underperform the market over time.

This reminds me of the Malcom Gladwell piece in The New Yorker. He tells the story of the brilliant investor: Victor Niederhoffer, who in 2001 was predicting that the markets would be quite. He had his fortune invested that way. Then planes flew into the world Trade Centers.

http://www.gladwell.com/2002/2002_04_29_a_blowingup.htm

In the end: we just cant predict what tomorrow will bring.


What I do know is this: The best thing one can do is build a stock portfolio that looks like the market, then balance it with short term bonds based on the amount of risk you need to mitigate.
This can be done with low cost index funds and ETFs and the help of a fee-only advisor who can help you determine how much risk you are comfortable with and who can then gude you to an appropriate portfolio - all at a reasonable cost.