The last 10 years have been abysmal for many investors. Now that 2010 is fast approaching, however, most of us are looking for ways to put the past behind us and find a more prosperous future ahead.
With that in mind, you've likely already seen a huge number of predictions for the coming year and beyond. Yet whether those attempts to foretell the future come from people who've proven reliable in their past predictions or from less reputable sources, there's only so much weight you can give any look ahead.
Nine predictions from nine experts
It's for this reason that Foolish retirement specialist Robert Brokamp searched far and wide for a variety of expert opinions on where the economy and the financial markets are headed in the future. As you can read in the January edition of his Rule Your Retirement newsletter, Brokamp talked with nine different experts, including folks like ETF guru Richard Ferri and stock skeptic Rob Arnott, to get their views on whether the U.S. is destined to see an even longer period of stock market stagnation, as Japan has seen since its market peak in 1990.
There's no denying that their views are interesting -- and as you might expect, they span the spectrum from extreme pessimism to some surprisingly bullish arguments. Yet amid the various ponderings about what the next shoe to fall may be, I found the comments from investment manager Larry Swedroe to be the most useful. That's because rather than taking his own stab at exactly what the future would bring, Swedroe gave advice that was simple and useful no matter what happens next year.
You should do what you can do
In a nutshell, Swedroe reminded Rule Your Retirement readers to focus on the things they can control. Sure, you can make a lot of money if you make the right predictions about whether U.S. banks like Citigroup (NYSE:C) or Wells Fargo (NYSE:WFC) will suffer the same fate as Japanese banks, or whether precious metals will keep skyrocketing and reward investors in stocks like Silver Standard Resources (NASDAQ:SSRI) or Barrick Gold (NYSE:ABX). But you don't have any power to actually make those predictions come true.
On the other hand, there are a lot of things you can act on with your investments. Here are five of them:
- Make sure you're taking the right amount of risk with your investments. That means ensuring that you're not overextended and therefore vulnerable to downturns, as well as making sure you have enough risk exposure to earn the returns you'll need to meet your financial goals.
- Diversify your portfolio so that you won't suffer huge losses when any one particular investment drops in value.
- Don't pay too much for investments. There are always lower-cost alternatives, whether you're looking at index mutual funds over load funds or discount brokers rather than full-service premium brokerages.
- Minimize the taxes you pay on your investments, both by trading less frequently and by using retirement accounts and other tax-favored investments.
- Cut your household costs. That reduces how much wealth you need to accumulate, and thus your investments don't have to grow as much.
Each of these points gives you something to look at in your own portfolio. However, I think the one that most investors can improve the most is in the area of diversification.
Diversifying is a lot harder than you might think. In picking individual stocks, the temptation is always there to look at whatever happens to be popular at the time. Right now, for instance, turnaround stories like Ford Motor (NYSE:F) and Sirius XM Radio (NASDAQ:SIRI) dominate the attention of many investors. If you're not careful, you can spend all your effort following just a few stocks.
Now don't get me wrong: There's value in drilling down on a few companies to become a specialist in the way they work. But by doing so to the exclusion of all else, you risk missing out on opportunities in other sectors. Back in 2008, for example, energy investors were quite happy to stick with stocks from giants like Chevron (NYSE:CVX) all the way down to tiny companies like PHI -- as long as energy prices kept skyrocketing. When the bottom fell out of the market, though, so too did most of those stocks -- and suddenly, those industry experts found themselves without other ideas.
Don't fixate on the future
With all that's going on right now, it's fun to guess what will happen next in the financial world. But don't hinge your investing success on guesswork. By following advice like Swedroe's, you can take control of your financial life no matter what the future may bring.
