I have a friend who, about 15 years ago, decided to abandon the rat race. He and his wife set out on a cross-country trip, aiming to settle wherever they found the best skiing. Their quest led them to the interior of British Colombia, which is where they still live.
Rick is now a professional ski guide, and a fully certified mountain guide. His job is to lead groups of tourists through days of heli-skiing, back-country skiing or cat skiing—and then get them back again safely. In other words, Rick gets up in the morning and gets paid to ski top-notch powder all day long. That sounds like a pretty nice life to most of us.
By contrast, I’m sorry to say that I do most of my own exercising in the relative comfort and safety of urban gyms or parks. I knew that if I ever ventured into Rick’s domain, I’d need some serious help. So last time I saw him, I asked him what qualities I should look for in a mountain guide.
Rick’s response surprised me. “Find someone old,” he said. I was puzzled: I’d have thought younger was better when it came to that kind of arduous pursuit.
But Rick enlightened me. There are young aggressive guides, he told me, but there are no old aggressive guides. In the mountains, being aggressive is the one quality that ensures you won’t make it to old age. So an old guide is, by definition, not just experienced but also very careful.
In fact, such wisdom itself is the sort that can only be dispensed by experience. It’s free from statistics, devoid of hype, and intuitively obvious—once it’s been pointed out.
Of course, in its way, my own world is just as dangerous as Rick’s. It too can often entrap the unwary with plunging stock prices, unpredictable financial markets, and treacherous interest rates. That’s why in my field too, you need to pick your guides with care. If a financial advisor combines youth and inexperience with too much aggression, those qualities won’t kill you—but they may well keep your cash from making it to old age.
So what’s the financial equivalent of my friend Rick’s sage musing? You could usefully start with some basic philosophy. Ask yourself (or your advisor): what do you believe about capital markets? Do you think you know what the stock market will do next year, for example? What the national economy will be doing? What type of asset class will perform best next year, or what sector?
If you answer “yes” to any or all of those questions, here’s something you might consider: a rather large body of evidence suggests that short-term movements of the market are essentially random—and therefore quite unpredictable.
That probably leaves you looking at your portfolio and wondering what to do. Many investors start by asking themselves, “Which investments are likely to give me the best return?” But the question they should really be asking is a slightly more complicated one. It runs: “Since no one really knows what will happen, how do I get a reasonable return AND still keep my money, even if the worst happens?”
Those two questions lead to very different places. The “best return this year” approach can lure investors into short-sighted strategies: betting on stocks, short-term trading, flipping real estate, charging in and out of markets. If you’re very lucky, this activity can sometimes work out well. But if luck isn’t with you every step of the way, it could kill you financially.
The cautious approach, by contrast, leads investors to diversify broadly, plan for the long term, assess worst-case scenarios, and have reasonable expectations.
In short, the daily noise of financial markets is a lot like a Warren Miller ski film. It’s fun to watch, and doesn’t even look too dangerous—mostly because you don’t get to see the parts that end up on the editing-room floor. That illusion makes the activity look safer than it really is.
But in real life, risks don’t go away; and hype always melts away over time. What counts most is that your strategy works, and for a long lifetime. Portfolios are at their best when they’re diverse, maybe a bit boring—and when, like good ski guides, they make it home every day.
If you are serious about getting your financial house in order, check out our recent book “The Copperjar System, Your Blueprint for Financial Fitness”, available at www.copperjarsystem.com or on www.amazon.ca
Alan MacDonald is an investment advisor with Richardson GMP Limited. Alan helps investors with over $500,000. of assets make smart decisions about money. He is the co-author of “The Copperjar System, Your Blueprint for Financial Fitness” available on Amazon.
For more information please visit www.alanmacdonald.ca or email Alan at Alan.Macdonald@RichardsonGMP.com.
The opinions expressed in this report are the opinions of the author and readers should not assume they reflect the opinions or recommendations of Richardson GMP Limited or its affiliates.
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