How to Invest With Certainty in an Uncertain World
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Here's your money briefing for Monday, February 28th. I'm J.R. Whalen for The Wall Street Journal. Watching the stock market respond to the crisis in Ukraine and trying to predict what's going to happen next isn't for the faint of heart. Professional investors have shuffled and reshuffled their assets based on what they think is going to happen, but that doesn't necessarily mean that someone building a stock portfolio or 401k should follow suit.
So you have that great advantage of being able to say to yourself, well, I think I know what might happen, but not necessarily having to change your investment portfolio based on it. And professionals don't have that luxury.
On today's show, WSJ Intelligent Investor columnist Jason Zweigelbe here to explain why individual investors looking for certainty in an uncertain world should look past the blizzard of forecasts and predictions. That's after the break.
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The fast-changing events in Ukraine over the past week have injected a feeling of uncertainty in not only the geopolitical landscape, but also in financial markets, which have whipsawed up and down in response.
How did the Ukraine crisis trigger volatility in markets and start this episode?
So should investors looking to protect their portfolio or 401k look for certainty in a rollercoaster stock market? WSJ Intelligent Investor columnist Jason Zweig says, not necessarily. And he's here to explain why. Jason, thank you so much for being with us.
Good to be with you, JR.
So Jason, we often hear that Wall Street doesn't like uncertainty, and it often triggers bouts of volatility and wild swings in the stock market. But why does certainty also present its own set of risks?
Because when you're certain about something, you're often wrong. And that applies not just to individual investors, but to professionals as well. And if you make a big change, a big sudden change based on something you're sure about, and you turn out to be wrong, you will probably regret it.
Okay, so let's look at this through the lens of last week's Russian invasion of Ukraine. How did that affect the certainty-uncertainty equation for investors?
Well, so it's kind of amazing the way Wall Street has amnesia. So as recently as February 15th, enormous numbers of professional investors were convinced that that when the Federal Reserve met in March, the Fed was going to raise interest rates by 50 basis points, by half a percentage point. Russia invades Ukraine and bang, just like that. Everybody decides, no, now 50 basis points is off the table. Maybe interest rates won't go up at all, but if they do, they're not going to go up by half a percentage point. And nobody had the sort of self-honesty to say, I was certain last week, and now I'm certain this week, and I was certain about things that were completely contradictory. Maybe I shouldn't be so certain.
You know, all it took was one geopolitical bolt from the blue to transform most people's forecasts about an uncertain event. And they took one form of certainty and replaced it with another just like that.
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