Ten Things
Intro
As summer draws to a close, and we turn our attention towards the year ahead, many of us are shifting gears. We move from summer pace of life to something more active and engaged. To help you transition into the coming season, here are ten things to think about and help you in the financial side of your life.
- I’m pleased to report… Considering all of the individuals and families I’ve worked with over the years, I’m pleased to report that most do a darn good job. Our society is challenging and complex. Life ebbs and flows through rough times and smoother sailing. Most people make their way through tested, even tattered, but intact. They have love in their families, they persevere through crises, and they make good decisions with their money. Given enough time, people seem to work well, together, to find their way through. It is quite a privilege to be of help as they undergo their journey.
- The trend is your friend. Over many decades,markets have had a long-term upward trend. Clients sometimes express worry that if markets are making multiple successive new highs, we might be entering a bubble or nearing the top. But if markets continue their long-term trajectory, we should expect new highs – with the occasional if painful resets.
- It’s bigger than you think. Many people seem to fear that markets are fragile. They use terms like “house of cards” and “what goes up must come down.” I disagree with this broad viewpoint. It appears to me that markets have proven remarkably robust and durable in recent years. Key to people’s misperception is people’s underestimating the size of the US economy. It is much much bigger than people seem to think. There are hundreds of millions of people in the US, billions throughout the world. And each is trying to find his/her way to sustain and grow for themselves and their families. Collectively, this is a massively powerful force with immense momentum.
- Don’t believe the hype. Media wants to attract your attention. Marketers want you to buy what they’re selling. Political groups want you to support their viewpoints. We exist in a constant swirl of hyped up messaging. While there may be some information underneath the headlines, don’t take anything at face value. Be careful, skeptical, curious. And don’t let the hype determine your investment decisions.
- Consider your biases. In spite of the hype referenced above, our world is rich with ready access to information. Take in information carefully, with some healthy skepticism. And try to keep an open mind. Many of us think we are open-minded, and at the same time we all have biases. For example, I have a bias towards optimism, so I have to bear this in mind when considering potential outcomes. Understand yours and question them.
- Shun certainty. Many people are uncomfortable with ambiguity. They like a world that has neat, orderly answers and predictable outcomes. Unfortunately, in the world of investing there is rarely a great deal of certainty. It’s unrealistic to expect clear and crisp indications of what is likely to occur. The biggest and best thinkers understand we live in a world of nuance and unpredictability. And they try to make rational sense of an uncertain world.
- The most likely path. Not infrequently, I will be contacted by a client who is convinced that something big, usually disastrous, is imminent. They have seen developments in the world around them: the environment, the leadership in Washington, their peers, and they have drawn conclusions. They’re deeply, even understandably concerned or disturbed that a worst-case outcome could come about. But just because something could happen doesn’t mean it will. In fact the most remote possibilities almost never, by definition, occur. So should investors allocate around highly unlikely scenarios? Or around what is quite probably going to happen?
- Compounding works, slowly. Most people have heard of this concept but don’t seem to fully grasp it in reality. It can take years of patient nurturing to build a substantial portfolio. If you contribute consistently to a solid mix of good investments, there is a high likelihood of building wealth. But it can take a long time. And human nature can intervene. If the process takes two decades or more, people often run into distractions along the way: there are other needs for their scarce cash flow, the market swoons and they lose faith in the long-term for markets, they get bored of waiting while their account slowly accumulates. But for those who stick with it, for decades, the rewards can by tremendous. And if you build a substantial base, a modest percent return on a substantial base can be… substantial.
- Get rich quick? As a rule, I don’t follow get rich quick schemes: they’re generally not available to most people and they generally don’t work out. There’s an appealing narrative in our culture, the person who (pick your windfall): won the lottery, made a mint in crypto, bought fantastic meme stocks. If you have one of these liquidity events, I wish you well. But I wouldn’t hope for this to be central to your financial plan. For most people, slow and steady is a more promising route. Patiently investing, every month, for years to decades, into a portfolio of good investments is boring, but likely to work. Get rich slowly, over time, and stay rich, and enjoy the process.
- Don’t panic, don’t FOMO either. People overreact. They know better. They say they won’t when times get spicy. But none of us is immune. It is perfectly normal to have an emotional reaction when something dramatic happens in the markets. But successful investors know not to react to these emotions. Overreacting when markets go down sharply can cause investors to miss out on the recovery. Overreacting when markets go up a lot can be a problem too. This can happen when someone gets drawn into a speculative investment, thinking they don’t want to miss out, only to watch it inevitably peak out and crash back to earth. Successful investors are slow to react, take sober careful assessment of what is going on, and make only measured and careful changes.
Conclusion
As we move into the crisp days of fall, let’s try to maintain our relaxed and balanced summer mindset. Whether the months ahead present volatility and headaches or calmer waters, smart investors will continue to take a measured and patient approach.
This material is for general information and educational purposes only and is not intended to provide specific advice or recommendations for any individual. Investing involves risk including the loss of principal. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Any economic forecasts set forth may not develop as predicted and are subject to change.
There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The Consumer Price Indexes (CPI) program produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services (Source: U.S. Department of Labor).
The PCE price index, or Personal Consumption Expenditures price index, is a measure of the prices of goods and services purchased by people in the United States.