Toss Your Quarterly Investment Statements

Now that it’s a new year, you're about to receive your fourth quarter 2010 investment reports.

If you have a financial advisor he might send you his own quarterly report detailing your performance for the last 3 months down to the penny---every stock, mutual fund, and account he manages. Along with those reports you’ll probably get some sort of outlook for 2011 and a review of the significant events of the last 3 months of 2010.

The reports will say something like this:

“The last quarter of 2010 saw a surge in US equity markets driven by increased risk appetite by investors as they shrugged off stagnant unemployment reports and rising interest rates.”

“The bond market began to fall as investors feared rising interest rates, making short term debt relatively more attractive at current valuations.”

“Our outlook for 2011 remains cautiously optimistic. After a 20 month run up we think equities are probably overvalued and remain bearish in the near term but cautiously optimistic in the intermediate term. Therefore we recommend a more defensive stance and recommend more exposure to large blue chip stocks with stable growth such as consumer staples and healthcare industries.”

While all of that sounds impressive, what exactly do you or advisor do with that information?

How about this: ignore all of it because it’s a complete 100% waste of your time. Here’s why.

First anytime you read a review of economic events in the past quarter, those events have already happened so it’s too late to adjust your portfolio to those events. Yes, unemployment was 9%. Yes, interest rates rose. Yes, manufacturing was flat. The problem is that none of this predicts what will happen this quarter.  And even if it did, you and your financial advisor are not the only ones who know this information. None of this is a secret. Everyone else already knows. So prices have already adjusted for this information and by the time you know it, it’s too late to adjust your investment portfolio.

Second, you’ll read incredibly vague phrases like “cautiously optimistic.” What exactly does that mean? I have no idea, neither do you, and I can assure your advisor doesn’t either. But it creates the illusion of sophistication. Speaking of that, what does “near term” mean? Is it the next hour of trading, the next day, next week, next month? What about intermediate term? Investing is a LONG TERM process, so why all the talk about last quarter and the near term? But financial advisors purposefully use nebulous terms like this to make themselves look smarter than they really are. Think about it –if you don’t define exactly what these terms mean, then no matter what happens to the market or the economy, the advisor will tell you he’s right. If the market goes down, he’s right because he’s cautious. If the market goes up, he’s right because he’s optimistic.

Third, how can anyone or a group of people understand something as complex as the economy or the stock market and predict where they’re headed? The Fed can’t do it. Mutual fund managers can’t do it. How do you expect you or your financial advisor to do it?

Fourth, while last quarter’s performance was probably pretty good, there’s no predictive value for this quarter’s performance or even this year’s performance. What’s more important is figuring out your performance in relationship to meeting your future goals.

So when you receive your quarterly statements skip the economic outlook and summary. Instead focus on more meaningful things such as: do you have the portfolio that’s right for you? I’ll tackle that question soon.