The Independent Market Observer

Main Street Vs. Wall Street

Posted by Brad McMillan, CFA®, CFP®

Find me on:

This entry was posted on Mar 29, 2019 1:35:00 PM

and tagged Commentary

Leave a comment

wall streetI was thinking again about the interesting times post. I want to give another slant on it that might help people get through the interesting times that are likely ahead: to separate our Wall Street thinking from our Main Street thinking. If we keep our minds firmly on Main Street, we can ride out quite a bit of news without getting derailed. It is when we start listening to Wall Street that we can get into trouble. This may seem a bit odd, coming from me. I’m a Wall Street creature, right?

We live on Main Street

You could certainly see me that way, but in fact, I am not. Commonwealth is not located on Wall Street. We are in a small suburban town where they used to make watches, not far, in fact, from Main Street. My job is not focused on what happens on Wall Street but on our advisors and clients—who are also on Main Street.

That’s not to say I don’t keep an eye on Wall Street. Of course I do, as you see every day here on the blog. Notice, however, that my focus is always on what the Wall Street news means—or doesn’t mean—for clients. We keep an eye on Wall Street, but we live on Main Street.

I developed this worldview when I was writing my book, Crash-Test Investing, and I think it captures very well not only what we are doing here at Commonwealth but also how the average person should be looking at their investments.

Ignore it!

Translated into the language of the interesting times post, a way to make the distinction between Wall Street and Main Street is simply to assess whether a news item affects your daily life. If it doesn’t, you can ignore it. Simple as that.

Oil prices down/up? Will your life be affected if gasoline prices rise or fall by a nickel? If not, ignore it. Market down 10 percent? Does this affect your ability to pay your bills? Ignore it. Trade war? Government shutdown? Weak/strong jobs report? Interest rates up/down? Ditto.

Note that if something does affect your life—interest rates when you are buying a house, for example—by all means pay attention. If not, though, looking at the short-term news cycle can derail your own long-term needs and goals. Wall Street needs the short-term news and thrives on it. Main Street doesn’t and can’t.

The wisest course: Letting go

As an investor, your goals span years and decades, and your financial plan is built on that time frame. You can think of it as a long-distance drive. A small event, something that doesn’t shake your life, won’t push you away from your goals and can safely be ignored. In fact, that is the wisest course. Can you imagine trying to reroute yourself around every traffic jam and traffic light? You just deal with it and move on. That is exactly what we should be doing with the news.

I do cover all of the Wall Street news on the blog because people do watch the news and do worry. I also try to make sure that if it might affect your life, I call that out. For most of what I cover, however, you can safely apply the Main Street rule—and ignore it.

I have to pay attention to Wall Street. You don’t. And unless you enjoy it, you may be better off just letting it go.


Subscribe via Email

Crash-Test Investing

Hot Topics



New Call-to-action

Conversations

Archives

see all

Subscribe


Disclosure

The information on this website is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets.

The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. All indices are unmanaged and investors cannot invest directly in an index.

The MSCI EAFE (Europe, Australia, Far East) Index is a free float‐adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of 21 developed market country indices.

One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent.

The VIX (CBOE Volatility Index) measures the market’s expectation of 30-day volatility across a wide range of S&P 500 options.

The forward price-to-earnings (P/E) ratio divides the current share price of the index by its estimated future earnings.

Third-party links are provided to you as a courtesy. We make no representation as to the completeness or accuracy of information provided on these websites. Information on such sites, including third-party links contained within, should not be construed as an endorsement or adoption by Commonwealth of any kind. You should consult with a financial advisor regarding your specific situation.

Member FINRASIPC

Please review our Terms of Use

Commonwealth Financial Network®