Jim'sMoneyBlog

Financial Opinion and Insights

How To Handle Uncertainty

Jim Lorenzen, CFP®

Jim Lorenzen, CFP®

Markets hate uncertainty.

You’ve heard that a thousand times.  We all have.  And, it doesn’t matter which decade you’re in.  The 1970s, 80s, 90s, and the last ten years have all been periods of uncertainty.   Whether the questions were about inflation, interest rates, tax laws, or increased market volatility, there’s been one constant:

Markets never have been, and never will be, certain of anything.   I remember people back in 1991 wanting to wait until they would `know what the market was going to do’.  They’re still waiting, I think.

Name a time you’ve ever heard anyone say, “Well, at last we have certainty in the markets!”  I’ve never seen it; and I don’t know anyone who has, either.

Warren Buffett, someone everyone loves to quote, is famous for saying he never met anyone who could predict the stock market.  He knows more people than I do.  All I know is when I begin getting market advice from my dry cleaner, it does send me a message; but I digress.

Right now, everyone’s worried about congress and whether they’ll raise the debt ceiling[1].  The Democrats are doing their best to scare everyone regarding the consequences of failure, claiming the U.S. will default.  The Republicans are claiming our biggest problem is the spending and borrowing more won’t help – I guess we all remember our younger days using our first credit card, so we can relate to that.

History has been filled with uncertainty and unpredictability:

  • Pearl Harbor
  • The Korean War
  • The Cuban Missile Crisis
  • The Vietnam War
  • The rise of the Japanese manufacturing
  • Mid-East Oil Crisis
  • Skyrocketing inflation and interest rates
  • Plunging interest rates
  • The Iranian Hostage Crisis
  • President Reagan walking out of the peace talks with Soviet Premier Gorbachev
  • The fall of the Soviet Union

That’s enough; I’m sure you can add many more to the list, including the first Iraq war, etc. 

Uncertainty is not new.  It’s normal.

Predicting the future worse than futile – it borders on the idiotic

And so, it should go without saying that reacting to events is not smart.  It’s counter-productive.

Don’t fall for the line, “This time it’s different.”  It isnt’.

The answer isn’t simplistic; but, it is simple:   Those who succeed are generally those with a plan. 

Your plan is like a lighthouse in a storm:  No one pays much attention during fair weather; but, when the skies turn dark and storms are raging and your boat is being tossed around – when it’s hard to see through the dense fog – the lighthouse shows you the way. 

It’s the one thing that isn’t moving.  It’s what you depend on to get you through the uncertainty.  It’s tangible.

Your plan should be tangible, too.  If your financial plan is `in your head’, face it:  You don’t have one.  It must be tangible.  It must be something you and your spouse can both see, touch, feel, and refer to when the uncertainty is all around you.

And, it always is.

Jim

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Jim Lorenzen is a CERTIFIED FINANCIAL PLANNER™ and in his 20th year of private practice as Founding Principal of The Independent Financial Group, a fee-only registered investment advisor with clients located in New York, Florida, and California.   IFG does not sell products, earn commissions, or accept any third-party compensation or incentives of any description.  Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment to the individual reader.  The general information provided should not be acted upon without obtaining specific legal, tax, and investment advice from an appropriate licensed professional.  The Independent Financial Group does not sell financial products or securities and nothing contained herein is an offer or recommendation to purchase any secrity or the services of any person or organization


[1] Just for the record, most are confusing two issues.  There is a difference between meeting debt obligations – bond payments to Treasury investors – and funding spending programs.  Failing to raise the debt ceiling will not result in debt default simply because Treasury revenue from current taxes is sufficient to meet those current obligations.  The real issue is not credit default, but the funding of the spending programs.  Without increase ability to borrow more, the government will be forced to prioritize their spending, which means cutting back on some programs which help get some politicians re-elected.  Naturally, if forced to prioritize, especially during an election season, many politicians will love to see programs cut for the largest voting constituency first – pain generates letters to representatives to change their vote.