Photo: Freephotos.cc. Source: Picography
A few years ago, my wife and I made a long drive on a deeply foggy night. It was hard. The fog reflected the headlights back at us, dazzling our vision. Otherwise, the thick fog made the night especially dark. It felt like we were driving inside a ping-pong ball. I was so relieved when we arrived safely, but it took a while to unwind.
Sometimes it can feel that way when we’re investing. The market is jumpy. The news comes out favorable one day and negative the next. There are stories of riots in France over gas taxes, our on-again-off-again trade disputes with China, palace intrigues at big tech firms, restructuring and downsizing at traditional companies, and so on. They never give you an all-clear signal telling you it’s safe to go ahead. And when you try to look ahead, all you see is the reflection of your own expectations.
History tells us one thing, then there’s commentary and opinion, and there’s always the potential for personal biases and hidden agendas. Of course the gold dealer is worried about inflation and financial instability, and the real estate fund manager is positive about real estate investing. That’s their job. The wish is father to the thought, as Shakespeare says.
There’s only one way to cut through the financial fog: realistic and focused planning, combining a knowledge of ourselves with an understanding of what the market can and can’t do. The stock market can provide long-term returns of 4-6% above inflation, but not without risk. Risk-free returns are roughly equal to inflation. If you need 15% returns to reach your goal, you’d better have a Plan B somewhere, like saving more and spending less.
While driving in the fog, I couldn’t control the road or the weather. I couldn’t even control what I saw in my windshield. But I could manage my car’s speed and direction. By staying focused and sharp, I avoided hazards and we reached our destination on time. Afterwards, the fog lifted and the outlook was clear. Hopefully, the same thing will happen soon in our financial markets.
Douglas R. Tengdin, CFA
Charter Trust Company
“The Best Trust Company in New England”