Past performance is no guarantee of future results

There are no crystal balls, and no one can predict the short-term outcome of investments.

The Mindful Money team. Photo: Karolina Zapolska

This story was written and paid for by Mindful Money, a Berkeley wealth management company that is committed to a behavioral and mindful approach towards financial well-being.

With markets and economies, there are ALWAYS more questions than answers… always. There are always headlines that describe impending doom — be it inflation, or a bubble in XYZ, or a pandemic, or terrorism, or war… There are always reasons not to invest. There are always reasons to wonder if we are at the precipice looking over into oblivion. Queue the ominous CNBC background music; “Be afraid… be very, very afraid.”

As time passes, the answers are discovered for yesterday’s questions and we move to new questions. Ultimately, we forget the majority of questions ever existed and we reframe history with nostalgia, “Remember when…?”

This is one of the absolute wonders of humanity. We can overcome obstacle after obstacle and then greet the very next challenge as insurmountable. Markets can go virtually straight up for 10 years, then experience a normal 10% correction (a historically, totally normal occurrence) that is treated like the beginning of Armageddon. The better things get in reality, the worse we often feel about that reality and the more we invent reasons that it cannot continue.

This is admittedly an odd beginning for the headline — Past performance is no guarantee of future results — so let’s tuck this into “investing.” The short term (and most of it is short term) is not just unknown — it is unknowable. There are too many variables and this volume of variables is compounded by the fact that each individual variable is bound up in that wondrous combo platter of human choice and cognitive bias. We make very important decisions in the midst of an incredible volume of noise, often without ever filtering for knowledge… much less wisdom.

We choose without knowing what we want, without having sufficient data, and with competing desires pulling us in every direction. Then, when we don’t get what we want right away, we change direction, we try something new, we make a different choice.

We don’t know what’s coming, we can’t tell what is next, so we are anxious. We have lots of theories, but we can’t Know anything. So, when the consultants suggest that they know — even if they hedge their knowledge a little — we WANT to trust that knowledge. We don’t know, but maybe someone else does know. Aren’t we lucky to have found them?

Well, if they really knew, then we would be lucky indeed. But, do they know? Or, are they just saying that they know? Can they know? Or, is it more likely that they have a theory they believe deeply? What if their compensation depends on your believing that they know? Well, then they’d probably work on sounding totally believable… wouldn’t they? And, if they knew your biases, they might even have an advantage over you.

The critical piece to investor behavior is understanding what that investor wants. If that investor wants safety, then that investor would be ripe pickings for an advisor to sell them safety. If the investor wants big returns, then they are looking for the person selling returns.

Whatever you want from Wall Street, there is a salesperson who will sell it to you. And, that is the problem… Whatever you say you want, someone has a product or process that claims to provide it. Even when the desire itself isn’t perfectly thought out, you will be told you can have the thing you want.

If we take our headline to heart — Past performance is no guarantee of future results — then we cannot trust ANYONE who is predicting an outcome in the short term. No one knows how stocks or bonds or commodities or crypto or real estate is going to perform in the next three years — because it is UNKNOWABLE.

If you meet someone who is offering you the short-term return outcome you want (be that higher returns or lower risk)… I would say that that person is either not entirely honest or potentially delusional.

But, Jonathan, you might say, I do actually have financial goals that I need to invest for. If I cannot choose an investment or an advisor based on a promised outcome, how can I hope to reach those goals?

Well, the first part may be the hardest. You have to let go of the attachment to the short-term outcomes. This is hardest because our culture is almost entirely focused on those outcomes. Your social media feed is filled with reports of people acquiring stuff, experiencing things, and living their best lives. And financial advertising is filled with reports of products and investment systems and ideas that are almost all talking about how they will improve your performance or protect you from today’s risk — that is the noise you have to let go.

Then you have to work to understand your long-term goals. What are those things that you are planning for in 10 years, 25 years, over a lifetime, and even a legacy? We call this financial planning. Someone once called this the 5 Ps —- Prior Planning Prevents Poor Performance. My dad added a 6th “P” because who doesn’t like an extended alliteration… but it was a tad vulgar and unnecessary to make the point.

Then, you have to stay forever mindful of the difference. You have to know when you are slipping out of the planning mode and into the prediction mode. The evidence of slipping into prediction is often the desire to reduce diversification and increase exposure to a thing that has recently done very well (even as research tells us that this process is a recipe for underperformance). If you remain mindful of the moment when you shift from planning to prediction, you can improve your outcomes.

If you are ready to leave the rat race of prediction, we’d love to chat with you about working together both to improve long-term outcomes and have a better investment experience.

Stop predicting. Start Planning. Stay Mindful.

Jonathan DeYoe, President and Founder of Mindful Money. Photo: Karolina Zapolska

Jonathan K. DeYoe is Founder and President Mindful Money, a Registered Investment Advisor.  He is passionate about personal financial planning, financial literacy and helping clients achieve better outcomes through mindfulness.  He is the author “Mindful Money: Simple Practices for Reaching Your Financial Goals and Increasing Your Happiness Dividend.” 

You can follow Jonathan at:

Web:  mindful.money

YouTube: https://www.youtube.com/mindfulmoney

LinkedIn: https://www.linkedin.com/in/jonathandeyoe/

Facebook: https://facebook.com/MindfulMoneyPlan

Instagram: https://www.instagram.com/mindfulmoneyplan/

Twitter: @MindfulMoney_Ed

This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Mindful Money and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Mindful Money unless a client service agreement is in place. Mindful Money is a service mark of DeYoe Wealth Management, Inc. a Registered Investment Adviser.