In an environment where everything seems to go sideways, or worse to trend downwards, resetting expectations is a must because the accustomed and expected upward trend we grew to expect in the past is not materializing in such a scenario.
If economies are growing more slowly … then markets will reflect that slower growth through the pricing mechanism of securities. How? Slower growth economies have lower profits. Those lower profits get reflected in market adjustments to lower stock prices, lower interest rates, and slower growth in stock prices.
An insidious tendency begins where individuals begin to “reach for yield” … but this means reaching for more risk. Return does not come without risk … they go hand in hand. This is why I say it is best to reset expectations and keep your risk manageable through recognition that returns are not what they were during boom times.
Keep risk and return relationship in mind and a globally diversified strategy should provide returns when and where they can be obtained with an eye on risk as well. We cannot control the markets or the economy. But we can control saving and spending. In the end, my own research has found those are actually more important factors towards achieving goals than blind reliance on factors outside of control.
How do you do this? That is what this blog is about, especially these postings.