Stories. There is nothing more powerful than a story to help change perception or convince us of something. Stories are a powerful way to push aside the need for evidence. When we are looking for some hope, the belief that things can change, or will be different, is alluring. The story says something has changed. We just need to believe.
Now is a dangerous time for many investors. People will say it’s because there is more uncertainty, and the outlook is more clouded. The future is no more or less uncertain than it has ever been. The future is always uncertain!
We are at a point where returns may be harder to come by. Ongoing stimulus will likely continue washing into equity markets. A great bonus for more aggressive investors, but the defensive parts of a portfolio offer almost no compensation. The most conservative investors will be the ones feeling it. That is the danger. Frustration will build. Nefarious types are aware of this.
A very conservative investor recently walked into our office. Conservatism was no longer working for him. He received a cold call with an offer. This conservative investor was suddenly mulling over the story of a promised double-digit return. He wanted to know what we thought of the story. We told him not to bother. A 1% return is better than a 100% loss.
Promises. Guarantees. Low risk. Higher returns. Safe. They are beautiful words, but all stories. Nothing has changed. The evidence says there is no higher return without increasing risk. There is no such thing as a guaranteed return.
Everyone wants to believe in a good story, but a weak moment can be financially ruinous.
Who is telling the story and where is their evidence?
This represents general information only. Before making any financial or investment decisions, we recommend you consult a financial planner to take into account your personal investment objectives, financial situation and individual needs. With thanks to my colleagues at FYG Planners for their insight.