Welcome to our next installment in Nancy Graham’s “Minding Your Money Matters,” thoughtful financial advocacy vignettes that you can readily apply to your life. Today we’ll cover why serious investors are best served by approaching the market with a disciplined plan for managing market risks, rather than the more common “winner takes all” mindset. We call this market-based versus predictive investing.

Planning versus Playing in the Market

There are essentially two ways you can go about participating in the market: market-based (as we advise) or predictive investing.

Predictive Investing: You Versus the Universe.

When you try to outperform the market by forecasting what is going to happen next among individual stocks, sectors or trends, you’re seeking to outsmart the collective knowledge of all market players – the bold and the brilliant alike.

According to the World Federation of Exchanges, 2013 stock prices in the world’s markets were the result of a daily average of 42 million trades totaling $212 billion U.S. dollars. This makes for highly volatile and essentially unpredictable pricing in the near-term, but remarkably efficient pricing over time. No wonder it’s so difficult to beat the market.

Market-Based Investing: You Are the Universe

We suggest that you are better off putting the market’s efficiencies to work for you in your portfolio by harnessing rather than competing against the market’s collective wisdom. Instead of trying to predict the market’s next moves, focus on factors you can expect to control as you seek to capture appropriate measures of long-term market growth. In our next post, we’ll take a look at what those factors are.