Investing Guesswork, Here’s What To Do About It

Posted on September 1, 2016 at 8:05 AM PDT by

If you ask a a high school student today what they want to do for a living, you’ll probably get a shrug and a smile. And that’s okay.

Career planning guesswork is like investing guesswork; they exist for the same reason. It’s amazing how quickly the economy changes, and how utterly unpredictable those changes can be.

investing guesswork

Entire industries exist today that nobody saw coming, extremely technical jobs but also careers around marketing, managing and selling technical products and services.

We still buy cars, but we also lease them and share them, too. We still buy houses but now we install high-tech smart home systems and wire them for Internet. Today’s job titles are incomprehensible to people whose careers peaked 10 years ago. Consultant? Consultant in what?

The answer is consultant in whatever the next client needs done. Skills are deployed to a problem, then the worker moves on to the next challenge, often at a completely different firm.

For a young person just getting out of college, none of this is surprising. Coming into a field with no experience also means having no preconception of what’s “normal” for a new job. You go with the flow.

People find investing guesswork for the same reasons. The companies that make up the major stock market indexes change every few years, for sure, but that’s just the large-cap consumer brands most people know by name.

Consider how different the small-cap stock world can be year in and year out. Companies raise capital, make some noise in the press, launch a product and then, maybe nothing. Or maybe a world-changing idea happens.

Google used to be tiny; now it’s huge and spinning out new firms as a holding company called Alphabet. Apple grew, virtually fell apart, then restarted to great success. How many dozens of biotechs and web startups have come and gone during those years?

Avoid investing guesswork

You can’t know the future, either in your career or investing. But you can make some simple moves to insulate yourself from unexpected change. For a career, that’s retraining and building new skills.

For investing, it’s avoiding the guesswork and owning index funds instead. An index fund always holds the largest, most recognized companies, year in and year out.

Diversification is an important way to reduce investing risk, of course, but it doesn’t help to buy a load of companies that no longer lead in their sector or, worse, could be shut out of future growth opportunities.

Investing guesswork is reduced by indexing, since indexing allows you to buy everything but also be assured that you own all of the better companies, no matter what the economy throws at you in six months or six years.