QUESTION: What would you recommend as the best investment strategy for 2016, particularly for personal finance management? (Question posted at “Ask a friend, ask Efren,” a free service available at www.personalfinance.ph and Facebook)
Answer: Have you heard of the Cosmic Calendar? It is a way of visualizing the history of the universe whereby its 13.8 billion-year existence is crammed into one single year. The midnight of Jan. 1 is used to represent the time when the Big Bang occurred while the current time is represented by the end of Dec. 31. To put everything to scale, each second would represent 438 years. Each hour would translate to 1.58 million years. And each day would be equivalent to 37.8 million years.
If the Big Bang happened on Jan. 1, the Milky Way Galaxy would have been formed only on March 16 (i.e. 11 billion years ago). But it would only be by Sept. 2 (i.e. 4.57 billion years ago) that our sun and the planets revolving around it would have formed. Now things start to get interesting.
From Dec. 25 to Dec. 28, dinosaurs, mammals, birds, and flowers emerge in that order. Then by Dec. 30 at 06:24 hours (i.e. 0.065 billion years ago), the Cretaceous-Paleogene extinction event occurs where non-avian dinosaurs die out.
It would only be by Dec. 30 at 22:24 hours (i.e. 2.5 million years ago) when primitive humans and stone tools appear. It would be by Dec. 31 at 23:59:49 hours (i.e. 4,500 years ago) when the alphabet and the wheel are invented.
The current second or Dec. 31 at 23:59:59 hours is when modern science, World Wars I and II, the Apollo moon landing and fascinating strides in technological advancement are happening.
One of the themes of the Cosmic Calendar is simple: Life as we know it took a very long time to develop. But when it began, its growth became exponential. Every single year progresses in the same way: Slow at first, then speeding up in rapid fashion as the months pass.
The year 2016 will be no different. Investors are going to go through a wait and see attitude first as the expected rise in interest rates owing to the US Federal Reserve’s actions plays out, the opposing sides within Opec for cuts in production are debated, investment risks shift back to emerging markets as their economies cool down and—until the Philippines chooses a new President.
Since the Big Bang, the universe has been single-mindedly working on its long-term strategy to get to where it is now. It has, over billions of years, concocting in its lab new, complex and exciting elements that faced violent chemical reactions along the way. And while life appeared only toward the last third of the Cosmic Calendar (and humans in just the last two days), it was nonetheless the universe’s most amazing creation. The fruits of long-term investing will come in the same way.
The year 2016 is just one year in many that you will devote for investing. There will be a lot of “noise” (i.e. somewhat similar to the violent chemical reactions in the Cosmic Calendar) that may tempt you to alter your long-term strategy.
Just recently, markets fell once more after their euphoric rise on the US Federal Reserve’s first action in many years. In its latest meeting, Opec decided not to cut production quotas. But then again, history has shown that Opec’s decisions to cut production were not always effective in pushing up oil prices. While some global risk may be shifting back to emerging markets, particularly in the East, not all western economies are out of their slump either.
And Philippine elections has never been more volatile with the possible disqualification of three of the five front-runners in the race for President.
Put on your investment headphones to cut out the market noise and listen only to your life goals. Use these goals as your guiding light in formulating and implementing your long-term investment strategies.
For as long as your long-term strategies are fundamentally sound, yearly events should not lead you to alter them. Focus on those investments that have the highest chance of weathering market noise. No less than Warren Buffett says so.
If you want to know more about investments, check out the free tools at www.personalfinance.ph
(Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent via SMS to 0917-505-0709 or e-mailed to efren@personalfinance.ph. To learn more about personal financial planning, attend the 51st RFP Program on January 30. For more details, inquire at info@rfp.ph or text <name><email><AFA> to 0917-9689774)