Will you be a wise investor in 2021? Do you know the right moves to make?
SMI executive editor Mark Biller talked about what the "right" moves are on MoneyWise Live from Moody Radio.
To listen, click the play button below. Scroll down for the transcript.
(And for more radio appearances by members of the SMI team, visit our Resources page.)
MoneyWise Live, with hosts Rob West and Steve Moore, airs daily at 4:00 p.m. ET/3:00 CT.
Steve Moore: "Making the right investment decisions in 2021" — that's next right here on MoneyWise Live.
Well, Rob, our friend Mark Biller is the executive editor at Sound Mind Investing, where they always include God in their decisions.
Rob West: And that's why it's always a blessing to get his wise financial counsel. Mark, great to have you back with us on the program.
Mark Biller: Thanks, guys. Pleasure to be here.
Rob West: Mark, there's no question we've survived one of the strangest years in market history, and everyone wants to know what to expect in 2021 — record highs or perhaps steep declines. But you're not here to make predictions today, are you?
Mark Biller: No, I'm firmly in the Yogi Berra camp when it comes to predictions. Of course, he said famously "It's tough to make predictions, especially about the future."
Y'know, in all seriousness, at the beginning of every new year, it seems like every financial pundit feels like they need to weigh in with their predictions, trying to tell us what the right moves to make for the year ahead are. Regardless of what's being predicted, whether it's the direction of the stock market, whether interest rates will rise or fall —basically any measurable financial metric — there have been studies done that have shown time after time that these predictions are unhelpful at best and harmful at worst really. The uncomfortable reality is that predictions are just a flimsy way to build an investment portfolio.
One phrase that I use a lot with our sound mind investing members is that investing is about probabilities, not certainties. And we're trying to stack these probabilities in ways that give us the best overall chance of success, while always keeping in mind that some things are going to play out differently than we expect. That's really the only thing that we can predict with any certainty is the uncertainty that we're going to face.
So, you know, if we're willing to admit that making accurate predictions is really tough — very unlikely — and that the whole prediction exercise is probably unhelpful, then we start to see that that making these "right investment moves" isn't necessarily something we should be trying to measure simply by which investments end up making the greatest gains. Really the "right" choices — again, we're using that term kind of tongue-in-cheek — these "right" choices, the ones that are right for you are going to be the ones that realistically assess your current financial situation, then look years ahead to where you want to go, and provide you with a high probability of getting there.
Rob West: Yeah, while knowing and accepting that there will, of course, be bumps along the way. Get us started here. How do we make purposeful movement down that road?
Mark Biller: First of all, the right investing decision is always one that's consistent with a specific biblically sound long-term strategy that you've adopted. Y'know, many investors kind of collect random ideas and that's their portfolio — things that seem like good ideas at the time, but weren't chosen with any thought of how each piece fits into the whole.
And that tends to happen by default because most individual investors are responders, meaning that they're reacting to outside information as it comes across their path. If you're making decisions on a case by case basis like that, without much thought to the big picture, that's usually not the best approach.
So the contrast to being responders is what we're always trying to focus on it as semi and that's to help our members be initiators instead of responders. And an initiator is someone who develops an individual investing strategy that's specifically tailored to their personal temperament and goals. Now for a person like that, the right move that we're talking about — again, about these right moves for 2021 — well, for that type of person, the right move is owning investments that they've purposefully sought out knowing how each piece fits into the overall scheme of their big picture plan.
Rob West: So what do you suggest for a person who wants to follow this initiator path that you described, but doesn't feel like they know what they're doing?
Mark Biller: Yeah, that's a great question. First, I guess I'd say, here are three suggestions that are kind of big-picture suggestions for anybody who's trying to figure this out. First of all, you should always pray over your investing decisions. Secondly, seek out and listen to good counsel. And third — and I think this one's really easy to overlook — give yourself time to reflect. Don't be in a hurry to decide. And as you're kind of going through those three broad steps, examine your motives. That can really help steer you around some dangerous pitfalls. "Why am I attracted to a particular or idea or strategy?" If you're married, certainly pray with your spouse and, and talk this out until you reach agreement. That's really important because you need to both own your investment decisions since you're in this together.
Now that's kind of general advice. As, as we drill down into the investing specifics, you know, I, again, I would say seek experienced Christian counsel — whether that means working with a Christian advisor or using a do-it-yourself-with-help type service, like what SMI provides — you want to be getting some good input into your decisions. If you feel like you don't really know what you're doing, you need that kind of good input and you want to get it from a source that has similar values to you. And then, as you evaluate your options, take your time to figure out what kind of approach is going to serve you well over the next many years, and then settle into a plan and a process that you can stick with for the long haul.
Rob West: Yeah, I couldn't agree more. And obviously getting wise counsel is critical. The Bible certainly underscores that idea. But what would you say, Mark. to a listener who feels like investing is just a complicated subject. They just don't understand it. Where should they turn?
Mark Biller: It can definitely feel that way, especially when you're just starting out. And I would just encourage someone who might feel that way by saying that a good plan doesn't have to be complicated to be effective. Y'know, we've got one simple strategy in our SMI Handbook that uses just four index funds and a person only has to touch it once a year. Now, that's an example of a really simple strategy that has been pretty effective over time.
So, y'know, bigger picture — as we're talking about these right investing decisions — well, the right investing decision is always one that you understand. Most people really don't need a particularly complicated approach. So give yourself a break, skip the complicated stuff, educate yourself on the basics. The right investment step is one where you know what you're doing, why you're doing it, and how you expect it to improve your situation over time.
And again, if you're not really sure what these basics are that you should be focusing on, we've got lots of free material available at soundmind,investing.org for you to start your educational journey.
Rob West: I think one of the areas that trips folks up is that they tend to base their investment decisions on getting the highest possible returns — and that can lead someone to trouble, can't it?
Mark Biller: Yeah, absolutely it can. Y'know, the right investing decision is one that's prudent under the circumstances and those circumstances are going to be different for each individual. So people often forget is that the investments that offer the highest potential returns usually come along with the greatest risk of loss as well. And so each person needs to answer the question of, "How much of their capital can they afford to lose and still have a realistic chance of meeting their goals?"
One great example of this, Rob — we talk about it from time to time — is the idea of owning the stock of your employer. Now, you may work for an amazing company whose stock is a great investment, but for you as an employee of that company, you already have so much tied to the success of that one company — your income, your health benefits, maybe part of your retirement income — that even if that might be a great stock investment for me as a non-employee, for you, as an employee of that company, you probably shouldn't own very much of that stock. It'd be better for you to diversify and not have all your eggs in one basket, even if it would otherwise be a great stock. So that's just a good example of, if you're just looking through the lens of where the highest possible returns are, you can actually get yourself in trouble.
Rob West: Mark, it's often said that fear and greed are the two emotions that tend to drive investing decisions. But, why don't you finish today — we've got about a minute left — how do we avoid letting those emotions drive our investing decisions in 2021?
Mark Biller: Yeah, it's so hard. Those are the twin pitfalls, the ditches on either side of the road that we want to be on. Y'know, I would just say, if you do the things that we've been talking about, praying over your decisions, seeking wise counsel, having a long-range plan, and diversifying your investments, those are things that are going to help you move forward with confidence. And. consistently applied, they're also going to help temper these fear and greed influences.
We always need to be aware of them because they never really go away, no matter how good we get at this. But the big picture point we're trying to make today is by understanding a few of these core concepts, you can be equipped to make basic investing decisions that are right for you. And hopefully, that will be true in 2021 and for many years.
Rob West: Absolutely. And one thing we know is that uncertainty is certain. So we need to trust a plan that's rooted in truth. That comes right out of God's word, Mark. Thanks for stopping by today. My friend,
Mark Biller: Always my pleasure, Rob,
Steve Moore: And you can read more about today's topic, what we've been discussing in their excellent article, "Making the Right Investing Decisions in 2021 and Beyond," when you visit soundmindinvesting.org. This is MoneyWise Live. I'm Steve Moore. We'll be right back.