Twenty-Five Years of Financial Insights(Part 11: What It Takes To Stay the (Golf) Course)


Throughout my 25 years as a financial professional, when I haven’t been busy advising families about staying the course with their low-cost, globally diversified investment portfolios, you’ve usually been able to find me on a course myself. A golf course, that is.

This Fourth of July, I took advantage of the relatively quiet business day to join two long-time friends in cottage country for a round of my favorite summertime pastime. The weather was spectacular and the conversation was as lively as usual. You see, my two friends and I have our differences but, if anything, they make the conversations all the more interesting when we’re out on the links.

I’ll talk about those differences in a moment. First, let’s talk about what my golf partners and I have in common. Of course all three of us love to golf. And we enjoy one another’s company. At least I enjoy theirs very much, and they seem to feel the same way about me.

Beyond our shared personal interests, we’ve all been financial professionals for more than 20 years. One of my friends is a successful Bay Street money manager in Toronto, overseeing assets for wealthy individuals, pension plans and mutual funds. The other one works on New York’s Wall Street, where he manages money for ultra-wealthy families, and a few pension plans and corporations. I’d like to think we’re all well-educated and well-versed in the many services, solutions and strategies that can be employed in managing our clients’ money.

The biggest difference among us? Both of them are “active managers,” and I am not. That is, they feel they can add extra value to their clients’ investments by analyzing market climates and conditions, and making cleverly timed trades to stay one step ahead of the market’s “average” returns. On the other hand, over the course of my career, I’ve concluded my clients are better off if I heed the long-standing and prolific body of academic evidence that strongly suggests otherwise.

As active managers, my friends never tire of talking about what they think the global markets are going to do next during the next few years – and why. Will Donald Trump help or hurt this or that corner of the market? How will the price of oil impact the Canadian economy? Is Tesla going to maintain its momentum or be overtaken by a competing car manufacturer?

I actually enjoy listening to and sometimes joining in on their banter. It’s entertaining, and it satisfies my intellectual curiosity. But as I listened to them that day, I noticed an important common thread. Each of these highly informed, highly educated professionals often had very different opinions on how they thought the various socioeconomic events of the day were going to play out. From Trump to Tesla and on a wide range of topics in between, their forecasts frequently and widely diverged.

Their conversation reminded me of some commentary I had just seen in a Wall Street Journal June 30, quarter-end recap:

“The question for stock investors is whether the strong first six months [of 2017] heralds a choppier second half or the start of a multiyear upswing. The data on global rallies offers a mixed record.”

Let me translate that into what they’re really saying:

“We have no clue whether high-flying markets will go up or down the rest of the year. Heads or tails, we can’t call it either way.”

In other words, it’s not just my friends who have differing viewpoints on current events and what they may mean to the markets. Apparently, everyone else’s signal-reading is just as mixed and muddled as theirs.

So where does that leave me and my clients? Rather than try to answer unanswerable questions about a wonderful or worrisome future, I feel there is a more useful question to consider for investors who are focused on “staying the course” toward their personal financial goals:

Does your low-cost globally diversified portfolio still reflect your goals and risk tolerances?

If the answer is yes, that’s great news. If, on the other hand, your portfolio seems off-track from your carefully crafted plans, then it might be time to revisit the course you’re on. Perhaps your own goals have changed. Or recent market surges or dives may have shifted your portfolio’s target allocations, so you’re now holding a little too much or not enough of a good thing.

In short, to me, prudent portfolio management calls for questions of a different sort than, “What did Trump tweet about today?” I prefer questions like: How can we best employ upfront asset allocation and ongoing rebalancing to keep your portfolio on track toward your personal financial goals?

Because, for all the clever ways there are to phrase a forecast, it’s really anybody’s guess.

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