Planning for life after December 2012
The Mayan calendar predicts that the world will end on December 21, 2012. For those who have been completely exhausted by the dramatic market volatility of the past three years, this news may come as a relief – at least there’s no need to figure out how to invest for a long future ahead. For those who believe that something has fundamentally changed in how political, economic and market systems function in this post-Lehman Brothers, debt-ridden world, the Mayan prediction may appear par for the course.
And yet, the prediction seems preposterous and deserves to be filed in the “quaint, but unhelpful” category, especially with respect to its relevance in making investment decisions. For investors in search of wisdom, Mark Twain may offer a better starting point: “history doesn’t repeat itself, but it rhymes.”
Whether you call them winter, spring, summer, fall – or new moon, first quarter, full moon, last quarter – there are observable patterns in how the world operates. The same holds true for the economy. Up, down, repeat. The periods of extreme highs and times of excruciating lows notwithstanding, one cycle has always given way to the next. Just because we can’t predict with accuracy when a downturn will give way to an upturn doesn’t mean that we should doubt the existence – and persistence – of the cycle.
In fact, successful investors don’t necessarily need to engage in the predictions game about how precisely the world will unfold. Instead, they use diversification as a tool to navigate economic and market cycles. Diversification doesn’t assure profit or protect against loss in declining markets, but it can give long-term investors confidence that they won’t miss potential market cycle upswings.
In that light, focusing on building a long-term investment plan – that will last beyond December 2012 – is still a very worthwhile endeavor. Start by helping your clients steer clear of predicting the future. Instead, help them plan for it based on things they can control, like determining how much money they’ll need for the lifestyle they desire in the future; evaluating whether their current portfolio is organized to sustain that vision; and ensuring that any changes they make to their plan is in response to their goals – not to fear-based predictions.
Sharing this post with your client may help start that post-December 2012 planning conversation.