“Buy this!”

“Sell that!”

“The stock market was down and now we are up, but the next drop is coming!”

“How long will it take for the economy to come back?”

These pretty much sum up all the financial headlines you’ve seen lately – plus constant reminders of how the stock market is doing throughout each day. Is it any wonder that we think the only way to make or preserve invested money is to “play the market” – to actively manage your portfolio based on constant news and spin?

This “play the market” mentality is part of the reason why people think the markets are “rigged” against regular investors, and that we’re the suckers in a rich man’s game.

But the evidence tells us otherwise. Research has proven it is not the markets that obliterate our portfolio returns, it’s us – specifically, our emotional behavior guided by misleading information.

So, know your enemy. The stock market is a known entity, both its strengths and weaknesses. If you’re getting beaten by this enemy, then maybe you need to change your strategy.

You don’t need predictions. You don’t have to follow market news. You don’t have to play the market. The markets are not rigged against you. You shouldn’t be moving your investments around because of current events. And you especially should not be changing investments based on greed or fear.

So, what is the proper approach?

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Write Your Own Narrative

The emotions and stress created by actively managing investments comes from reacting to conflicting market information and trying to outguess infinite variables. You are playing on hunches and wishful thinking. You cannot win that game; to win over the long haul, your buy-and-sell guesswork would need to be right 70% of the time.  

Instead, play by your own rules and disregard the media hyperbole:

• Determine your objective: Are you building wealth, or seeking balance between preserving wealth and sustaining conservative growth?
  
  
• Allocate smart: Mix stocks, bonds, and cash to meet your objective. Consider passive, broad-market index mutual funds, or Exchange Traded Funds (ETFs) in this allocation; individual stocks add unnecessary risk.
  
  
• Be boring: The strategy to meet your objective should be efficient and effective, and should minimize risks.

Understand the Ups and Downs

Ask yourself, “If the stock market should drop 50%, am I OK with that?”

Who could possibly be OK with that? Plenty of people. Millennials, for example: They should want the down markets to buy more inexpensive shares with their retirement account contributions

An allocation strategy is based on history and data. And it keeps one fact front and center: The stock market is volatile in the short term, but in the long term, it’s up. Permanently. 

It’s good to remember in this troubled time: The short term is full of minor downturns and 17 major recessions since 1797, but the market has been positive over every 10-year period. Hopefully you have many 10-year periods left in your life. Today is always low compared to the future.

Now that we have some basics, let’s look at some advice for specific situations:

Click here if you are still working and are not close to retirement.

Click here if you are retired, or close to retirement.