Wednesday, August 13, 2014

Couldn't Stand the Weather


Have you ever noticed the similarity in forecasting the weather and financial markets? Why do we worry about the two, when both are out of our control?

The winter of 2014 was cruel in most parts of the country, with record cold temperatures and heavy snowfall and, to top it off, something called a polar vortex. When winter finally ended, many people were lamenting, ”Oh boy, we are going to pay for that winter with a brutally hot summer.” That didn’t happen; it has been a pretty mild summer, with below-average temperatures in many places. The same could be said about the financial markets: when the year began every financial “expert” and talking head were predicting that interest rates would be higher this year. Well, here we are, almost at Labor Day, and the yield on the ten-year Treasury bond has fallen from 2.6% to nearly 2.4% this year. Not near the 3.5% yield most “experts” were predicting.

What would have happened if you sold all of your bonds at the beginning of the year because you thought rates were going higher? You would have missed out on a pretty good return on your investment.

While forecasting keeps many meteorologists and economists employed, predictions are useless. When it comes to investing your hard-earned money, what matters is your plan. When will I need this money? How much of a rollercoaster can I stomach? When it comes to the weather; own an umbrella, a warm coat, and a pair of winter boots. Control what you can control, and don’t worry about all the other noise.

No comments:

Post a Comment