Beware Macroeconomic consensus

[milesdividendmd]

There is an all too human desire to listen to other peoples confident predictions. 

Professed believers in "the efficient market," and "passive investment" often feel insecure about sticking to their plan to stay diversified when the common wisdom is that "interest rates can only go up from here."

I am not immune to this impulse, and will admit that I have felt uncomfortable buying long treasuries for the past few years.  (But I did anyway.)

One of the nicest things about a prespecified investment plan, such as "buy and hold"  is that you can supress your own human impulses and fill in the numbers, ignoring what you want to do. In other words, you can get on with your life, and stop getting in your own way.

This is a great article from Larry Swedroe, about how unwise (and costly) common wisdom often is...

http://www.etf.com/sections/index-investor-corner/23719-swedroe-the-surprising-lessons-of-qe.html

Enjoy!

[MDM]

Good article, thanks for posting.

[hodedofome]

The reality is that nobody knows what's going to happen in the future. Its entirely possible that rates drop for the next 10 years before rising. Once you accept that you cannot know the future, and that sticking to your well-thought-out plan is the only shot you have, its easier to ignore the consensus and push forward with your strategy.

It helps to not read the news or allow yourself to be influenced by other people's opinions. I am a trader and I don't watch CNBC or read the paper or anything like that. It's just noise as far as I'm concerned.

[milesdividendmd]

The reality is that nobody knows what's going to happen in the future. Its entirely possible that rates drop for the next 10 years before rising. Once you accept that you cannot know the future, and that sticking to your well-thought-out plan is the only shot you have, its easier to ignore the consensus and push forward with your strategy.

It helps to not read the news or allow yourself to be influenced by other people's opinions. I am a trader and I don't watch CNBC or read the paper or anything like that. It's just noise as far as I'm concerned.

I agree completely. Japan is a great example of just how long interest rates can stay low.

Financial forecasting is toxic.

But it is amazing how frequently this perceived wisdom about The bond market is shared by those of us who claim to be passive investors.