What Should Investors Do Now?

“No one knows anything.”

“There is a science to investing.”

Given the market volatility and the steep declines of the last year or so, which quote would you agree with?

My answer is that I agree with both statements.  Here’s why.

Absolutely no one can successfully predict the short term direction of the stock market, the value of the dollar or gold, the movement in interest rates, etc., etc. When it comes to investing, there is no magic formula. There are no gurus who can foretell the future and help you “beat the market.”

On the other hand, there are approaches that work very well in the long term. For example, there is a fundamental relationship between risk and (expected) return. Ignore it at your own peril.

And you can learn from the past; you can devise a sensible strategy. Most of all, by following a long term buy-and-hold approach with a diversified portfolio that is matched to your risk tolerance, you can avoid the big mistakes of being too optimistic or too pessimistic.

For a thorough presentation on the intellectual underpinnings of a buy-and-hold approach and what investors should consider as they move forward, I highly recommend the video, What Should Investors Do Now? by Weston J. Wellington of Dimensional Fund Advisors.

This multi-part presentation includes “an examination of capital markets, the effects of recession and government policy on stock prices, how the current market stacks up to previous downturns, and the reasons why our core beliefs have not changed in light of these events.”

If you hold an MBA in Finance, you’ll find this video to be a valuable review of capital markets and portfolio management. If, like most people, you’re merely an ordinary investor, one just trying to figure things out, this will be an extremely useful introduction to the evidence that supports a sensible  long- term approach to investing.

So, grab a cup of coffee or tea, then sit back and enjoy the show. It is over an hour long, but you can view it in segments.

Watch it here.