It’s that time of year. If you go to cocktail parties at all, you’ve likely been to one or more in the last few weeks. You bump into people that you know, and many people that you only see at the annual cocktail soiree around the holidays. And you have the same chats and discussion about semipersonal topics, and a lot of “putting the best foot forward.”
In years like 2017, when the US market was strong, there are a lot of stock market cocktail stories. I know because I hear them often and I listen carefully (after all, it’s connected to what I’ve been doing as a career for most of my adult life). The stories get bigger with every martini!
Later, friends and clients tell me about so-and-so who bought such-and-such and made a killing. And then the question: “Why didn’t I have that?”
First, there’s no repeatable way to pick stocks that outperform in the short run, and to pick only outperformers. Having witnessed the results of thousands of client accounts over four decades, I can tell you from personal experience that portfolios with winning stocks have losers, too. Sometimes a lot of losers!
You just don’t hear about them after the first martini. You only hear about that one stock that made a killing.
In my book The Eight Points of Financial Confidence I offer suggestions on how to build a repeatable portfolio geared toward meeting your goals. Your goals have to do with what you want to happen in your life, not with “beating the market” or holding the hottest stock of the year.
Start by developing the right asset mix between growth and stability (commonly called stocks and bonds). Next, invest the unpredictable stock dollars in broadly diversified, institutional-quality mutual funds; your fixed income should be placed in issues of high-quality bonds or brokerage-traded, insured CDs.
After setting up this portfolio, you exercise patience and let the portfolio work for you. And you make changes when the portfolio needs to be rebalanced back to your desired allocation. Or you reposition because your risk tolerance and time horizon have changed.
Not a very “sexy” story for the cocktail party—until someday you can report your progress over a couple of decades rather than just the last 12 months.
The Eight Points of Financial Confidence is offered on this website for the low price of $11.95.