Riding the ups and downs of the stock market roller coaster can provide for a thrilling and stressful experience. As a Los Angeles fee-only financial planning firm, there are decisions clients face when developing an investment strategy. These decisions are based on removing emotion, lowering risk, capturing global market returns and tailoring investments to meet their financial plan. Over the next several weeks, I will share ten decisions investors face as they try to build long-term wealth in the capital markets.
1: Embrace Market Pricing
The market is an effective information-processing machine. Each day, the world equity markets process billions of dollars in trades between buyers and sellers—and the real-time information they bring helps set market prices.
This doesn’t mean that a price is always right—there’s no way to prove that. But investors can accept the market price as the best estimate of actual value.
If you don’t believe that market prices are good estimates—if you believe that the market has it wrong—you are pitting your beliefs and hunches against the collective knowledge of all market participants.
With each trade, buyers and sellers bring new information to the market, which helps set market prices. No one knows what the next bit of new information will be. The future is uncertain, but market prices will adjust accordingly.
This is part one of a ten part series in pursuing a better investment experience.
Part Two: Outguessing the Market – Don’t Try It!
Part Three: Resist Chasing Past Performance
Part Four: Let Markets Work for You
Part Five: Consider the Drivers of Expected Returns
Part Six: Practice Smart Diversification
Part Seven: Marketing Timing – Avoid It!
Part Eight: Separate Emotions From Investing
Part Nine: Look Beyond Investment Headlines
Part Ten: Control Your Investment Focus
Investopedia: Forces That Move Stock Prices
Los Angeles Financial Advisor
Still have questions in how to pursue a better financial planning and investment experience? Meet with a financial planning firm in Los Angeles or online.