Forget Pundit Predictions. Your Portfolio: Practical and Personal.

Burt Shulman

Among its many painful lessons, the current financial crisis provides a stark reminder that public investment pundits tend to have at best a theoretical, rather than a predictive understanding of the markets. So many of us poured so much money, not to mention faith, into the markets on the advice of these public pundits, and both money and faith took a serious beating. Some pundits do present information and perspectives we can all use to make better decisions, but recent events have once again made it clear that as a group they have little real predictive abilities. Soothsayers they ain’t — ask almost any investment “expert” point blank and they’ll admit that timing the market is generally a fool’s game, unless you’re willing to spend most of your waking hours studying and tweaking mathematical models that focus mainly on daily, even hourly time horizons — and unless you’re fully prepared to lose your shirt when things still don’t work out as planned.

For most of us — with the bulk of our investment money in 401k’s, 403b’s, IRA’s and similar pre-tax vehicles — the safest path is to start with a hard look at our bottom-line needs and goals, and our investment time horizons. Time horizon is defined as the number of years that remain before you plan to (or must) achieve a specific goal — for example, the Big One, retirement. Time horizon helps determine how much investment risk you can reasonably take because the longer you can hang in, the more risk you can handle. That’s because, in the event of serious downturns such as the one we’re living through, your investments will have more years in which to recover.

The main point: if you’ve been searching the web for the latest round of pundit-provided answers to the Big Questions — “How long will this recession last?” or “Could this be the prelude to another Great Depression?” or “Is it time to jump with both feet into the market?” — you’d be better off sparing yourself the trouble. The simple fact is that almost every pundit got this one wrong, and those who got it right arguably did so the way a persistent player will occasionally win at roulette. Regardless of their training, what public experts do remains as much an art as a science — and all too frequently that art proves to take the form of fantasy.

On the other hand — when they analyze the relative likelihood of a range of potential future outcomes; or when they engage in rear-window, “what the heck just happened” analyses, the experts can help you avoid potentially serious future mistakes.

If you have investments now, but no financial advisor, the suggestion here is to stop searching the headlines, and start searching for an advisor you can trust. Referrals from friends are helpful, but there’s no substitute for interviewing advisors yourself, checking their backgrounds, and studying their long-term — not short-term — track records (long-term meaning at least 5 years). Ask a ton of questions about their business model, which will be either discretionary (where you’ll sign over to them the discretion to invest on your behalf without first obtaining your approval) or non-discretionary (where your advisor can’t do a thing without getting your signature first). There are arguments to support both approaches, and your choice may be as much a matter of your temperament as anything else. But as Bernie Madoff has taught us all, regardless of who you work with, in the end you’re responsible for your own financial health. Painful as it may be, we owe it to ourselves to keep opening those monthly statements, especially in tough times, and to keep asking our advisors — and ourselves — every question that comes up. At all costs, avoid advisors who a) don’t like to answer questions and / or b) insist on providing their own investment statements rather than statements from the institutions that actually process and hold your investments.

If you don’t have any significant investments yet, this is a fine time to get started; the market is low and though it may go lower it’s certainly cheaper to get started today than it was, say, last August. Still, always remember the old maxim: if a deal looks too good to be true, it is. For every big gain there’s an equivalent (and possibly greater) big loss that could strike at any time.

Still, on balance investing in the stock market has proven to be a very good move for most who have been able to keep their money in the market for long periods. So — contribute as much as you can to your company’s 401k or 403b plan, and / or open your own IRA; it’s all pre-tax money, which reduces your current taxes because it reduces your current taxable income. And despite the mixed messages coming from our government right now (“Americans don’t save enough” followed immediately by “Americans don’t spend enough”), over the long haul saving toward specific goals is the best way to go.

No matter how much they may shout at us on television, or how many statistics they confidently recite to prove their points, public experts are only 100% accurate in the rear-view mirror: reviewing what happened yesterday. And while that kind of insight has its benefits, the suggestion here is to think long-term, find a trustworthy financial advisor, and save, save, save.

Burt Shulman is a contributor to the Fund.com Expert’s Desk and Managing Partner of ESE Advisory Group LLC. For more on Burt and ESE Advisory Group LLC click here.