In some ways, predicting the economy is even more difficult than forecasting the weather, because the economy is not made up of molecules whose behavior is subject to the laws of physics, but rather of human beings who are themselves thinking about the future and whose behavior may be influenced by the forecasts that others make.
- Ben S. Bernanke, Current Chairman of the U.S. Federal Reserve(May 22, 2009)

Some say we are in a steady recovery. Some say we are headed for inflation. And others say our economy could worsen due to deflation. So the only thing anyone knows for sure is that Bernanke was right-it’s impossible to predict the economy. So…what do we do?

If you believe in capitalism, then down is still good when it comes to investing. Arguably the greatest investor of the age, Warren Buffet, tells us “Be fearful when others are greedy and greedy when others are fearful.” In laymen’s terms, don’t let your emotions get in the way and stick to your disciplines-buy low and sell high. Many might question whether or not today is a time to be greedy since the S&P 500 index was up over 60% at the end of last year from the March lows. On the other hand, the S&P 500 was still down 28% from its peak in October 2007 by the end of last year and is even lower today.

P.S. If you are retired and have stopped buying into the market due to retirement-ask yourself “Why?” It’s critical to have a disciplined investment plan in place that works for you and continues to buy into the market during retirement. Confused? Check out Buy Low: Sell High-Great Advice, but Is It Really Possible? at our on-line learning center.

On the flip side of the coin-we still don’t know whether our economy is going up, sideways or down. Gold is at an all-time high, energy prices are low, and the dollar is rallying. With that said, there is one other discipline you must remember to keep: diversify risk.

Though diversification can’t protect against loss or guarantee any gains, proper diversification can address an array of risk. We have found that too many investors – and, believe it or not, advisors – take a very passive look at risk. Because there are so many types of risk, most people don’t understand what or how much they are actually taking.  With that in mind, it’s important to understand various types of risk and diversify those risks in the same manner that most advisors diversify a portfolio through asset classes. Each sector, region, cap, and style imposes its own inherent risk. If you ignore the political, regulatory, business, systematic, nonsystematic, interest rate, currency, or inflation risk; that exact risk will be the one that ends up biting you. 

Ask yourself these things:

• What are my family’s long-term goals?
• Do we have a disciplined plan to reach these goals?
• Are we sticking with our disciplines?

Besides money, what do Michael Jordan, Bill Gates and Warren Buffet have in common? The answer is discipline. They didn’t reach success on making emotional decisions or decisions based on what the media is telling them how they’re doing – whether they are up or down. They reached success by following their disciplines.