Written by The Torrance Memorial Professional Advisory Council
Investing your wealth seems to be as confusing as ever. The new U.S. tax
law adds perhaps the most significant changes to business and personal
taxation since the 1980s. Worldwide, stock markets trended upward in 2017
with minimal volatility. It appears capitalist “animal spirits”
that drive investment in equipment and allow for payroll increases have
been released. Still, we worry about inflation. Will the aging population
drag down growth? What is this Bitcoin thing? What do the populations
of a growing China and India portend for the rest of the world? Will trade
patterns be disrupted by self-serving national policy choices and protectionism?
To keep from being overwhelmed, following a simple outline will help.
- Focus on the most important factors that define the world’s economies,
e.g., gross domestic product (GDP), Consumer Price Index inflation, unemployment
and disposable income.
- Understand how to use tools that work in good times and bad.
- Clarify what is important for you and prepare for uncomfortable uncertainty.
The modern economies of developed and developing countries have evolved
to solve basic needs. They will continue to evolve, and investment markets
offer the means to participate. Competition and open, free markets are
necessary conditions for economic health. Good public policy and legal
protections for property rights will also promote this health. Countries
that do not properly address these issues will likely add just enough
uncertainty to be avoided by investors.
Amid uncertainty, is there a way forward? The answer is yes. We do have
the equivalent of a free lunch, and it’s called diversification.
The range of financial products is vast and often very consumer-friendly
to obtain with low entry amounts, low fees or commissions, and are freely
tradeable. In fact, building a portfolio has never been easier. Nonetheless,
it is a challenge to understand all the characteristics of the many asset
categories which may include large and small stocks, domestic and international
stocks, corporate and government bonds, real estate and commodities, among others.
Behavioral studies in the area of wealth management have yielded a bounty
of cautionary tales for modern investors. Influenced by factors like emotion,
impulsivity, overconfidence or overreacting, it turns out we humans are
poorly adapted for modern investment decision-making. Attempting to understand
normal human biases may help us act as better investors.
Ultimately wealth management is all about the investor. Money exists to
serve certain needs, and an important part of the process is defining
those needs. Whether or not you work with an investment advisor, developing
an investment strategy that addresses your investment time horizon and
goals, risk tolerance, liquidity and income needs, along with income tax
consequences, is a good place to start on your path to successful wealth
management. Regular review of your strategy, along with taking a long-term
view, can help you be better equipped to deal with market volatility.
Torrance Memorial Medical Center’s Professional Advisory Council
(PAC) is a volunteer group of estate planning attorneys, accountants,
financial planners, fiduciaries and life care professionals dedicated
to supporting Torrance Memorial Medical Center and educating the community
on the benefits of charitable tax and estate planning.
For additional financial health information, please attend Torrance Memorial’s
Financial Health Seminars. For details on upcoming events, visit