All tagged Financial Planning

Time IN the Market > TimING the Market

The belief that you, or a particularly talented financial manager, can foresee the direction of the stock market is a seductive one. Some investors are confident that, with proper research, they can make money by snapping up equities when prices are low, and shifting their investments into cash or bonds when the market hits its peak. Even worse, they believe they can pay someone else can do it for them. But longitudinal studies have shown time and time again that no one can consistently predict the direction of the market in the short run.

However, many armchair investors persist in the belief that, by carefully following business news and trusting their “gut” instincts, they will be able to beat the market. Some study the stock tips in personal finance magazines, others hope to glean additional insight from analysts’ reports and specialized investment newsletters, and still others attempt to mine all the available data, crafting complex simulations of how the market is likely to behave in the future.

But if financial professionals struggle to keep ahead of trends, private investors are even less likely to outfox the indexes. As soon as a piece of business or economic news hits the airwaves and the Internet, analysts and brokers react immediately to the information. Because these financial professionals act so rapidly, the stock market almost always reflects all the known information at any given moment in time. And even if an individual investor were able to develop an analytic model with some real predictive value, unexpected events—such as a terrorist attack or a natural disaster, or even a political scandal—could lead to sudden and dramatic market fluctuations that no model based on historical data could have anticipated.

It is only natural that investors would want to find some way to sit out bear markets and get back just in time for the next bull run. It is useful to keep in mind, however, that even the slowest equity markets have some bright spots. A diversified portfolio will help you protect against loss and capture whatever gains might occur in a market downturn.

Investors run a big risk by selling when they believe stocks have reached their peak. They may turn a profit when cashing in their equity holdings, but they could also miss out on some of the market’s best cycles. Being absent from the market for only a few of the days or weeks with the highest percentage gains can decimate a portfolio’s returns over time. Market timers who sell frequently also lose money to transaction costs and taxes, and miss out to a large extent on the compounding effect that benefits investors who remain in the market consistently. Instead of trying to time the market, investing in a properly allocated diversified portfolio driven by a goals-based financial plan is a much better strategy.

Trying to pinpoint the right time to invest in the stock market is an exercise in futility. If you have a longer period to save, owning equities provides the most effective hedge against inflation and taxation available. Since it is impossible to know where the market might go from here, it makes sense to start investing now and continue investing on a regular basis, regardless of market conditions. Remember: long-term investment success is achieved not by timing the market, but by time in the market.

 Seth Godin recently wrote a book entitled This Is Marketing and these are the 5 things that I really liked from reading it. I’ve paraphrased from the book my 5 subtitles.


1. My product is for people who believe ...

I will focus on people who want ...

I promise that engaging with what I make will help you get ...


These three fill-in-the-blank statements are gold for anyone trying or wanting to figure out what their competitive advantage is in the marketplace. This has caused me to take the time to think about who my service is specifically for, what my intended audience actually wants, and what I’ll commit to giving my clients for their benefit. I have so much more focus and direction with my business and service offering by going through this exercise. And the really good news is that this is an exercise I, or anyone, could start at any phase of the business. It’s even a good exercise to do on a regular basis, even annually, to make sure I haven’t veered from my target or to confirm if I need to change my course.

2. Branding vs marketing, strategy vs tactics, and be a farmer not a hunter.

These lines speak to the refreshing wisdom of taking the longview when it comes to serving people and growing a business. Rather than trying to find a hack or a trick to get attention quickly, why not focus on building a strong foundation with fundamentals and principles. I’ve found many business owners must take short cuts and try to fast track revenue because they didn’t do the slow and steady work of saving up a cash reserve and honing their craft over the previous years in order to have a multiple year runway in their business. By runway, I mean the ability to live off of personal savings instead of forcing a business to become a high revenue source of income too soon.

3. Price is a marketing strategy.

This resonates with me because I don’t have to do things the way they’ve always been done when it comes to pricing. For example, just because the financial industry has been known for selling products in the past doesn’t mean I have to do the same. I can price simply and transparently for advice. That in itself can be a big benefit to those whom are looking for the ease of understanding what they’re paying for.

4. Marketers need to spend more time on helping, one person at a time, day-by-day.

This resonates with me because it’s comforting to remind myself that I can’t expect to get there over night. It’s the small incremental actions that make a big difference over time. It’s the compounding interest effect applied to serving clients and helping people one at a time over the long haul. It’s not until a decade down the road that someone can look back and see the mountains they’ve scaled. I also like the emphasis Seth places on taking action rather than coming up with ideas. Both are really good and important things to have as strengths, but it’s showing up with the courage to put yourself out there with a real product or service, day-in and day-out, that creates the real change.

5. The goal is to be known by the smallest viable audience.

This to me was the mantra of the entire book. I like this because it forces me as a business owner and financial advisor to be specific in whom I’m serving and why. It’s easy to say I’m going to be the best at everything or that I want to help everyone everywhere, but that’s not really committing to anything or anyone in particular. However, I can make a big impact when I force myself to put detail and commitments behind it all. I need to continually ask myself whom specifically am I best suited to serve and how many people am I capable of serving really well. This can also keep me from chasing distractions and losing focus on what’s really important.

#AquilaWealth Newsletter -- No. 1 #IRA Mistake, Productivity Recommendation, and Jet Lag

I like to send out a newsletter to my clients and friends every-other week on Thursdays at 2 p.m. PT. I typically include 3 articles with my commentary around the topic of personal finance. Here are the ones I like this week, and I think you will too. (Feel free to email me at eric@aquilawealth.com if you want to be added to my email newsletter list.)

#1 The No. 1 IRA mistake

#2 Productivity Recommendation: Take the Kolbe A™ Index/Instinct Test

#3 The Scientific Secrets to Preventing Jet Lag