I got sick this last week with an ugly cough, which was beyond my control.
It’s a good reminder that you and I are not in charge.
There’s an investment lesson here too. You must distinguish between the things you can control in investing and those you cannot.
- You cannot control the stock market or interest rates.
- You cannot control—though you can vote—who gets elected at the end of 2024.
- You cannot control geopolitical and economic news.
The flip side is that you should not let your perception of a news event’s impact alone dictate your day-to-day investing. You can make significant mistakes this way if you’re wrong.
Be aware of the insidious self-delusion of thinking you know how the market might behave. As one person quipped, “The market may be crazy, but that doesn’t make you a psychiatrist.”1 In fact, trying to control the market just might make you insane.
You should be guided by an investing North Star that is formed when you align factors such as your short and long-term investment goals, estate planning, and risk tolerance.
- You can control how much you allocate to risk assets and the obvious risks of doing so.
- You can control how much you have allocated to conservative assets and the hidden risks of “safe” investments.
- You can control the types of accounts you set up, the beneficiaries you name, and whether you seek out legal, tax, or investment professionals.
- You can control (to an extent) your spending and saving habits.
Often, the media and conversations with others will have you focusing more on things you cannot control and less on what you can.
Don’t fall for it.
If you do, it’s a fast way to becoming financially unhealthy.
Take the time to focus on improving your financial health by concentrating on what you can control and doing it the right way—whether you’re continuing good habits or starting new ones for the first time.
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Sources:
- Quoted by Eddy Elfenbein in CWS Market Review – April 12, 2024.