The recent market volatility has brought out the worst in the financial media.  Much of the discussion has focused on “explaining” the reason for the drop in stock prices.  The most common explanation is “fear of inflation.”

Barry Ritholtz sets forth additional explanations, including valuations, risk parity and high-frequency trading.  After listing these possible causes, Rithotlz concluded that “mean reversion” and “random chance” were the most likely factors.

All this speculation led me to ask a series of questions to address what it all means to you.

What if you made no effort “figure out” the market?

Instead, you engaged in activities you genuinely enjoyed, liked pursuing your hobbies and spending more time with loved ones.  Your returns wouldn’t suffer.  Your anxiety would lessen.  The amount of your leisure time would increase.  You also would be spared from trying to figure out why investors were “spooked” by the fear of inflation on one day, but that fear miraculously dissipated a few days later when the market recovered some of its losses.

What if you ignored the financial media and paid no attention to “gurus” and other “experts”?

Most of them are wrong most of the time.  When they’re right, it’s most likely luck and not skill.  I mean no offense to psychics, but if there was a “psychic channel,” would you be compelled to watch it in an effort to learn about the future?

It’s simply not intelligent or prudent to base your investment decisions on “financial psychics.”

What if you reduced your investments to one fund and never bought or sold until you needed the funds?

In investing, simple traditionally trumps complex.  For many investors, buying one of Vanguard’s low management fee target retirement funds, or one of its LifeStrategy funds, is the only investment they’ll ever need.

For these investors, here’s their plan in a nutshell:

• If one of the Vanguard funds noted above is suitable, buy it at as young an age as possible;
• Save a minimum of 15% of your net income and invest regularly in this fund;
• Do nothing else (except rebalance, if you invested in a LifeStrategy fund) until you retire.

What if you followed this plan?

Your expected returns would be significantly higher than those who bounce in and out of the market, following the advice of their broker or other “experts.”

Resource of the week

I highly recommend this excellent blog post by Ben Carlson:  Why Simple Beats Complex.

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