What We’re Reading: Forecasts, Wishes, and Worries

With each new release of unemployment or inflation data financial guru's and prognosticators adjust their forecasts. However, history proves that these "forecasts" are little more than guesses. Yet, many investors tweak and adjust their portfolios based on these guesses without realizing the long-term impacts this has on their financial success. 

"Do you really want to invest your hard-earned savings—the money you’ll need for your kids’ college or your own retirement—based on someone’s hunch or wish?"

 Today's highlight article from Dimensional explains the differences between forecasts, wishes, and worries and how we as investors can tune out this noise to focus on the big picture and the peace of mind that comes with having a diversified portfolio. 

Diversification & Time
Tune Out The Noise

This week's chart shows historical returns by holding period for stocks, bonds and a 50/50 portfolio, rebalanced annually, over different time horizons. The bars show the highest and lowest return that you could have gotten during each of the time periods (1-year, 5-year rolling, 10-year rolling and 20-year rolling). This chart highlights the benefits of a diversified portfolio paired with an appropriate time horizon. The diversification helps reduce the wide range of returns and provides a smoother ride. Meanwhile, time is on your side. The range of returns over any short-term 1-year period is wide. Longer-term, this range of outcomes becomes smaller and more positive.

What Else We're Reading

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