Super (Bowl) market forecast no substitute for sound investing
By Bruce E. Brinkman
Wondering what stock market returns will be this year? Look no further than the Seattle Seahawks’ victory in this year’s Super Bowl game. According to the Super Bowl Predictor Theory, if the game is won by an NFC team like the Seahawks, the market will continue to gain ground in 2014. The theory has held true for 37 of the last 47 years—a 78 percent success rate.
But theory is no substitute for common sense and when it comes to investing, there are a few foundational principles that lead to long-term success.
Rebalance your portfolio. The global stock and bond markets are much like the weather in the Midwest: Gains, like rains, come in different areas at different times. What you thought was a well-balanced portfolio of stocks—both domestic and international, along with various types of fixed-income investments—may have gotten out of kilter during the past year.
The past few years have been good for many investors and it’s easy to take an attitude of “if it ain’t broke, why fix it?” when it comes to the individual investments in a portfolio. However, it’s important to remember that the overall mixture of stocks and fixed-income investments, whether held individually or in mutual funds, is the primary driver of total return in a portfolio.
If your target was a 60 percent stock and 40 percent fixed-income allocation at the beginning of 2013 and that goal hasn’t changed, there is a good chance you may be over-weighted in stocks now, since the equity markets overshadowed the bond markets last year. A well-balanced portfolio can help offset market volatility.
Focus on what you can control. Mark Twain once famously said, “Everyone is talking about the weather, but no one is doing anything about it.” The same could be said of the stock market. You can do nothing to move the market up or down, so spend your time on the few things you can control, such as the cost of your investments. For example, studies have shown that mutual funds with lower expenses tend to outperform those that are more expensive to own. Annual expenses, by law, must be listed on all mutual fund prospectuses.
You can also control your buy and sell decisions. Before you sell, ask yourself what has changed since you purchased the investment. Many investors understand the mantra of smart investing, “buy low and sell high,” but their actual practice is the reverse. If it helps, pretend you are on your favorite radio or TV talk show explaining to your audience why you are selling or buying a particular investment now. If you don’t have a good explanation, you probably need to wait until you do.
Stay in the game. The market, like the economy, moves in cycles. Unlike the four seasons of the year, we only discover where we are in the current cycle by looking back from some point in the future. Just as no one can forecast the winner of the Super Bowl each year, so no one can predict if there are more gains to be squeezed out of the market this year. Rebalance your portfolio and control what you can, but don’t ever leave the field.
Editor’s note: Bruce Brinkman is a certified financial planner with Allen, Gibbs & Houlik, L.C. of Wichita. He can be reached at 316-291-4191 or firstname.lastname@example.org.