When it comes to investing, our retirement planning rests in our ability to make sound economic judgments based on mathematically quantifiable numbers. We weigh the financial risks and rewards, and then make our decision.
Fortunately, or perhaps unfortunately, we are a little more complex when it comes to making decisions. For one thing, our emotions, developed after a lifetime of experiences, play a large part in how we act.
This fight-or-flight tendency helps us make good (some might argue “safe”) decisions; it prevents us from swimming with sharks or walking barefoot on lava flows. Granted, some aspects of nature can be somewhat predictable, but interacting with unpredictable investors on Wall Street is entirely different.
Despite our best intentions of trying to make rational decisions on something as black-and-white as finances and quarterly results, our plans are complicated by having to work with others who are attempting to interpret the same information—and coming out with different conclusions.
Too much avoidance of risk and/or fear can get in the way of making some really good investing decisions. We distrust our own conclusions and end up following the herd to financial mediocrity, or even ruin.
By better understanding who we are, where we come from, and what our fears and risk tolerances are, the better we can be at creating a solid, well-diversified retirement portfolio.
For example, at the most basic level, we know that the better we feel, the more apt we are to rush into something—and possibly make mistakes. A large number of optimistic investors—those who didn’t think revenues or earnings were important—saw their retirement fund take a beating at the … Read More
In an effort to reduce volatility and protect their investments against the rising cost of living, many investors add commodities to their retirement portfolios. That’s because a large number of commodities are influenced by inflation well before it impacts the overall economy.
The perfect reflection of supply and demand, commodity prices climb when there is strong demand and taper off when the economy is doing poorly; in the latter case, the future looks bleak.
Gold prices collapsed earlier this week, suffering their sharpest fall in 30 years. Silver is also down; so, too, is copper, oil, lead, aluminum, corn, wheat, soybeans—simply put, commodities are getting hammered.
It’s not as if there isn’t news to support the decline in commodities. The U.S. has seen a raft of negative economic news trickle in. April consumer confidence levels fell from 78.6 in March to 72.3—its lowest level in seven months. (Source: Smialek, J., “Consumer Sentiment in U.S. Declines to a Nine-Month Low,” Bloomberg, April 12, 2013.) U.S. retail sales fell 0.4% in March—the largest drop in nine months. (Source: Kowalski, A., “Retail Sales in U.S. Decline by Most in Nine Months,” Bloomberg, April 13, 2013.)
Weaker-than-expected growth in China, Asia’s largest economy, is weighing on global sentiment. China’s economy expanded just 7.7% during the first quarter, below the forecasted eight percent. Industrial output was expected to expand by 10%, but it only climbed 8.9%. (Source: “Market Buzz: Negative outlook on weak data from China,” RT web site, April 15, 2013.)
And conditions in the 17-member eurozone are still dismal. Joachim Starbatty, one of Germany’s pre-eminent economists, said he wants to see the dissolution … Read More