It is the obligation of a financial advisor to educate investors on the techniques of investing, the risks versus rewards and the proper balance of the items in their portfolios. If I had to paraphrase all this advice in one statement, it would be: "Don't blow up your assets!"
Within the last few weeks we have seen a proliferation of the 2006 forecasts from high-profile economists. Almost all the forecasts fall within a neat range that spells boredom for investments this year. The interest rates, according to these experts, will fall within the three to five percent range. The stock market will return between three and eight percent. Yes, we have already seen three percent year to date. Our GDP will grow somewhere between two and four percent and inflation will fall between 2.5 and four percent.
Even confronted with these unexciting prospects, many investors demand greater returns. If interest rates are four and one half percent Ð and they are for maturities of one year or maturities of 30 years Ð they ask how they can get eight. Upon hearing stocks are likely to return six percent, they want to shoot for 12.
If an investor is to avoid "blowing up assets," discipline must be the order of the day. Most higher potential investments involve greater risks. Most alternative investments, like real estate, precious stones, or precious metals involve less liquidity. The tendency to make substantial moves into other investments at the expense of liquidity is what I call "Speeding on a Muddy Road."
