Wednesday, June 12, 2013

No One Can Predict the Future

As the Dow reaches new highs, I see behavioral patterns in investors that can often lead to irrational decision making.  Humans have a tendency to act and react emotionally on both greed and fear. When the markets move swiftly in either direction, people get excited or scared and can lose sight of why they are investing in the first place, and bad decisions may be made.

Consider the fact that as an investor, if you take the time to plan and determine the most important things you want to accomplish in life, there is a required time commitment that coincides with obtaining these long-term goals.  There is a disconnect that occurs when people respond to external stimuli (i.e., what the market or politicians are doing today) and make decisions based on these occurrences. 

No one can predict the future.  Having a written plan and knowing what you are trying to achieve can provide a deterrent to irrational decision making.  I feel as a financial planner this is one of the primary services that we provide to our clients.  We work to keep people on track and help them avoid the knee-jerk reactions that could prove to be detrimental to achieving the most important goals in life. 

Doug Lennick, CFP, quoted, "Too many financial professionals try to predict the future.  It's a fool's game."

 A financial plan can help you prepare for whatever happens.  For example, if you need money in the next few months or year, you will have an appropriate place to take it from.  If you're saving in an investment with the goal of growth for future income, you keep that money off limits for short term needs. 

The reason most couples argue about money is that they haven't verbalized and written down what they want for their future.  The process of having this discussion with your significant other, of planning and dreaming about what you want your future to look like, is the first step in taking control of your financial life.

We can't predict the future but we can make educated guesses and monitor and make changes as necessary, as life continues to unfold before us.

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