Navigating Market Storms and Wall Street Hype

When it comes to making predictions, everyone’s an expert. Apparently you just have to sound like you know what you’re talking about, and you’re considered credible.

This is especially true in the financial industry, where there tends to be a lot of machismo, particularly during times of market volatility. It seems like everyone has an opinion about where you should invest your money. But smart investors know to steer clear of the noise and stick to a disciplined and diversified strategy.

Athlete picks
Given the onslaught of “expert” advice, it came as no surprise (well, maybe a bit) when I saw that Jose Canseco was tweeting about negative interest rates and gold a few weeks ago. You may recall the Oakland A’s slugger with the Popeye-sized biceps from the 1990s. Yes, that Jose Canseco. He was one of the “Bash Brothers,” along with Mark McGwire. Now he’s hot for gold.

On Feb. 12, he tweeted, “not a surprise but everyone should be in gold.” Minutes later, he added, “$1500+ by Memorial day.” Mind you, this is coming from the same guy who famously had a ball bounce off his head and over the wall in right field at Cleveland Municipal Stadium, resulting in a home run for the opponent. Despite his lack of professional investing experience, he’s reacting like so many other “experts” to the recent turmoil in the financial markets. I may find his tweets amusing, but I’m certainly not piling my clients into the glittering metal.

Beating the pros
Canseco’s recent musings brought to mind Orlando, the “ginger feline” who made news back in 2012 by beating a team of investment professionals and a group of students in a yearlong stock-picking experiment. The cat picked his stocks by throwing a toy mouse at a grid of publicly traded companies. His human opponents used methods involving “research” and technical analysis. At the end of the year, Orlando’s picks had returned nearly 11% while the pros had gained just 3.5%. In comparison, the Standard & Poor’s 500-stock index rose 13% that same year. They all would have been better off just buying an S&P index fund.

More recently, MarketWatch reported that Wall Street’s most-hyped stocks lost big in 2015. In fact, they did worse than the stocks that the same highly trained, highly paid analysts said not to buy. Apparently, though, bad forecasting is customary among Wall Street analysts. In the article, Brett Arends reports, “Each year since 2008, analyst data supplied by Thomson Reuters and stock performance data from FactSet show that analysts’ bottom-10 stocks on average have beaten their top-10 counterparts by 10 percentage points.”

For fans of professor Eugene Fama, a Nobel laureate in economics, this comes as no surprise. He has long maintained that even when professional money managers do outperform their comparative indexes, luck plays a huge role in their superior performance. “I’d compare stock pickers to astrologers, but I don’t want to bad-mouth the astrologers,” Fama has been quoted as saying.

Stay diversified
Since the beginning of the year, we’ve seen a lot of turbulence in the markets and anxiety among investors. However, the best way that I know of to combat the fear of a down market is to look back in history. The stock market has so far been an upward-reaching entity. Yes, it occasionally takes a break, temporarily declining or hovering at lower elevations. But over the long run we have seen, and can expect to see, growth.

Yet, as our “experts” repeatedly demonstrate, it’s impossible to know which stocks will do best next week, next month or next year. That’s why my advice is always the same: Stay disciplined, goal-oriented and diversified with your investment strategy. It’s the surest way to navigate market storms, Wall Street hype and “juiced” home run hitters.

This article was originally published on NerdWallet.com (https://www.nerdwallet.com/blog/investing/navigating-market-storms-and-wall-street-hype/)

Why You Should Have Bonds in Your Portfolio

You scarcely read or hear much about bonds these days. The stock market, especially in recent weeks, grabs the headlines all the time. Bonds just aren’t glamorous. Sure, Michael Milken, “the junk bond king,” brought some glamour and headlines to bonds back in the late ’80s, but they haven’t received that kind of coverage since.

Yet that’s no reason for investors to forget about this important asset class. Bonds are one of the three major asset categories — along with stocks and cash — you should have in a balanced portfolio. Investing in a mix of these assets is a good strategy for achieving your financial goals.

Having bonds in your portfolio can help reduce risk, which is a welcome proposition given the market volatility we’ve seen since the beginning of the year. Stocks tend to be more volatile than bonds — they go up and down further and faster — and that makes them a riskier proposition for the short-term investor. Think of stocks as cleanup hitters. They’re going to hit a lot of home runs, but they’re going to strike out a lot too. Bonds are more like leadoff hitters, the guys who can consistently hit singles and get on base. They can be a stabilizing force amid volatility.

Inverse movement
The stock market, like most things, tends to cycle. Right now, the decline seems to be a reaction to the dramatic drop in oil prices and the slowing of China’s economy. Bonds cycle, too, but they’re not as volatile as stocks. Instead, bonds often have acted as insurance by reducing portfolio volatility.

This is because bonds often move inversely to stocks, and this tends to be mostly true when stocks are falling. However, bonds are in an unusual place right now because of historically low interest rates. When rates rise, the value of bonds will go down. But this should not deter you from holding bonds in your portfolio because they are still less volatile than stocks, and if the stock market takes a big hit, bonds usually rise. This means bonds and stocks work in concert with one another in your portfolio.

In designing a portfolio, you want to have a mix of assets that can move inversely under different market conditions. Diversifying in this way reduces your risk and thus your chances of getting hurt.

Asset allocation
Asset allocation — holding the right proportion of stocks, bonds and cash for your situation — is important because it can impact your financial and personal goals. However, designing the best asset-allocation model or portfolio can be complex. You need to look at your time horizon and your tolerance for risk.

Your mix of stocks and bonds also should be determined in part by the amount of money you need and when you will need to withdraw it from your accounts. If you don’t include enough risk (think stocks), your investments may not earn an adequate return to meet your goal. However, with too much risk (think not holding enough bonds), the money may not be there when you need it.

For instance, an older person should have fewer stocks and more bonds in his portfolio. A 25-year-old, though, can have a higher ratio of stocks. She’s in it for the long run and can take more risk than someone who’s nearing retirement.

Stay diversified
We’d all like to know what will happen to our money in 2016. While we can count on the media to offer plenty of headlines and opinions about the economy and markets, the danger comes when we base our investment strategy on these headlines.

We can’t know what will happen to stocks or bonds, and we can’t outguess the markets. If I could, I’d probably have a cult following. But we do know this: The markets will go up, and the markets will go down. And some parts of your portfolio will do better than other parts.

Having the right mix of stocks and bonds will reduce your portfolio risk and your potential losses. So instead of trying to pick a bunch of hot stocks, investors should stay diversified and goal-oriented — and not forget about bonds.

(This article was originally published on NerdWallet.com (https://www.nerdwallet.com/blog/investing/why-you-should-have-bonds-in-your-portfolio/)