Cashing Out in the Trough (courtesy of Next Step Wealth)

Have We Hit the Market Bottom? Should You Care?

The inevitable questions about the stock market are buzzing again, from the airwaves to the dealing rooms to the bars where newly unemployed brokers are contemplating their futures.

The speculation is interesting in the way a pennant race or a hitting streak is interesting. But if you are an investor who is worried that you may “miss” a big move, you should relax.

Over many years I have never heard of anyone who made and kept a fortune by catching the bottom of the market. Rather, too many have lost a fortune by trying – and failing – to time the market.

Professional investors, the really smart ones, view trying to catch the bottom of a market the way professional poker players view drawing to an inside straight: Folly.

The Failure of Asset Allocation

What went wrong? First, asset allocation, no matter how sophisticated, is no panacea. Asset allocation can explain past market performance, but not predict which allocation will work in the future. Although correlations of assets are fairly predictable over time, correlations can be extremely unpredictable over shorter time periods. For our own industry, it is a lesson to be learned. Our industry has preached and sold the merits of asset allocation for nearly 20 years. For the industry and its professionals, it is time for a frank discussion with clients on what asset allocation truly means: Not only what it can do, but more important, what it cannot.

Why Money Messes With Your Mind

Our relationship with money has many facets. Some people seem addicted to accumulating it, while others can’t help maxing out their credit cards and find it impossible to save for a rainy day. As we come to understand more about money’s effect on us, it is emerging that some people’s brains can react to it as they would to a drug, while to others it is like a friend. Some studies even suggest that the desire for money gets cross-wired with our appetite for food. And, of course, because having a pile of money means that you can buy more things, it is virtually synonymous with status – so much so that losing it can lead to depression and even suicide. In these cash-strapped times, perhaps an insight into the psychology of money can improve the way we deal with it.