Much financial news purports to be about the future but is really just an account of the past. When stocks have fallen heavily in price, this is routinely reported as, “More bad news for investors today…” In fact, if you are a long-term investor, that could be good news unless you had to sell then. The key is how your portfolio performs from now on, not what happened yesterday.
Investment is about the future, not the past. Because the future is unknown, we should strive to manage the uncertainty by diversifying across stocks, sectors, asset classes, and countries.
Everyone’s individual future is different, which means the investment strategy each of us adopts will vary. Some will want a strategy that delivers regular income; others will be more focused on capital growth. Some will be risk takers, others risk-averse.
This is why an assessment of the future and the uncertainty surrounding it should not just be approached from the level of the overall market but from the needs of each individual. That is the role of a qualified financial advisor: to help connect each individual’s circumstances and needs to their goals.
None of us can control the future. One response to future uncertainty is to speculate and try to position one’s portfolio to take advantage of one possible outcome or another. Another response is to stay highly diversified and to use the information in market prices to stay focused on dimensions of expected return.
By hoping to diversify against risk and ensuring that your portfolio addresses your individual circumstances, this can help ensure that you are making the most of your investment. While we cannot prepare the future for our portfolios, we can still strive to prepare our portfolios for the future.