Focus On What You Can Control

Elsewhere I have pooh-poohed the annual ritual engaged in by pundits, investment houses and their economists, bloggers and newsletter writers of forecasting the direction of the markets over the coming twelve months. I don't think it can be done. It's financial porn. It may be entertaining to read but destructive in the long term. (Note: Readers know that I believe you CAN estimate long term returns from asset classes once you know starting valuations.)

As Larry Swedroe, investment manager and author of "The Only Guide to Alternative Investments You'll Ever Need" has said:

There seems to be some great human need for us to believe that there is someone who can tell us where the economy and the market is going. The best thing for people to do is recognize that there are no forecasters [who can do this].

What to do then? Well, in my opinion (and Swedroe agrees) you should focus on the things you can control. What are they?

(1) You can control how much you save.
(2) You can control how much you pay in taxes via tax efficient investment vehicles and strategies.
(3) You can control how much risk is embedded in your portfolio.
(4) You can control how much you pay in costs for your portfolio (advisor fees, trading costs).
(5) You can control how much volatility the portfolio is designed for.

Can readers suggest other things you can control?

ADDENDUM (2/6/10, 6:10AM)

Fidelity has now introduced a no trading fee program in 50 exchange traded funds (ETFs). Charles Schwab has done something similar. For asset allocators this is big news. Portfolios can be bought and rebalanced without costs. Since costs are a large part of the drag on individual investor portfolios, removing this drag has immediate benefits to performance. What is the downside? Temptation into frequent trading. What is in this for Fidelity and Schwab? Attraction/retention of customers.