I always loved Rudyard Kipling’s poem, “If”. One of the lines that always resonated with me is, “If you can keep your head while all about you are losing theirs and blaming you…” Additionally also being a fan of Hemingway’s writing where he talked about grace under pressure in his books like the “Old Man and The Sea” is something emotionally connected with me.
Professionally, I have tried to keep my head and have grace under pressure. This goes back to my days serving in the Navy particularly being in the nuclear engineering program where we drilled endlessly just in case of major emergencies. It was important to know what you are doing and staying calm and poised.
Right now with the major crisis in the Ukraine, not only are we seeing the repercussions of war and all the human suffering that it entails but it is causing chaos politically and financially. Inflation was already an issue from the previous two years related to the effects with Covid due to supply chain issues, work force, and Government monetary policy but it has become much more amplified because or rising commodity prices particularly oil which we are all seeing with rising gas prices. These issues are having real life effects for all of us. And wait!! We are also in another election year where all these factors are being discussed politically.
It is understandable to have concern, worry, and fear. You would not be human if you did not feel that way. One of the many roles that we play for our clients is to serve as a guide through your life’s journey. Most obvious we serve as a guide as you navigate your financial journey but as we embrace life centered financial planning, it is also about navigating your life and your life goals. To us, your life and your finances are interconnected. As we have discussed before, the goal of virtually all our clients is to be able to maintain their lifestyles and standard throughout their whole life especially as they transition to retirement. I’ve learned that I cannot completely eliminate your financial fears and concerns but a crucial thing is to tie the long-term planning to your goals.
At this point, here are some key things I want you to think about:
- Stay focused on your long-term goals. You might be saying, “Of course, you keep saying that.” I realized we have to keep saying this. Investing in the markets is emotionally hard. Many of you who work with me know I share that Warren Buffett says you need to think of the market as a schizophrenic man who one day is irrationally happy wanting to buy, buy, buy! The next day, he is depressed and wants to sell, sell, sell. The market in short-term is very helter skelter. Another Warren Buffett maxim is that in short-term market is a voting machine subject to a lot of emotion. Over the long-term it is a weighing machine that goes to its value which is based on earnings. We believe in the bucket plan which divides your money in 3 buckets, now, soon, and later. Now is for next year, soon is for next 2-10 years, and later is 10 years in beyond. The money that is most volatile is the money in stock. You should never really have no money in stock for your now bucket, very little in soon, and much more in the later. Said in other words, the part that is really volatile right now is your later money.
- To go along with #1, I am reading a book right now called “Active Investing in a Time of Disruption”. One point jumped out to me. Only 5% of market timers really can deliver truly superior results. Trying to get in and out of the market is just incredibly difficult. That is why your allocation that you have is something we wanted to talk about and pin down before the negative volatility occurs. I like to say, the time to weather proof your house is not during the storm but before the storm. We design portfolios based on your long-term goals and when you need the money. We talk about the money cycle that says before you distribute it or take it out, you need to preserve a portion. These messages we have delivered before but it is important to keep hearing them. Of course, this is always your money and we will do what you say but we caution making big moves in times of crisis.
- It is normal in times of negative volatility as you see negatives to feel like I am going to lose everything. For many of you we have shared the Pyramid of Risk. For the vast majority of folks, you have most of your liquid net worth in mutual funds, exchange traded funds, and index funds. For every stock fund you have, you may have 50 to 2000 stocks in one fund. If you have the S&P 500 index fund, you have the top 500 companies in US. Google, Apple, Home Depot, General Electric, McDonald’s, etc. The probability that all of them will go out of business is extremely low. It is important to remember difference between possibility and probability. Once again, we are your guide to cover this.
- Another reason people like working with us is someone is awake at the wheel. We are constantly monitoring portfolios and meeting with managers to get a world view. It doesn’t mean we are buffering you against periods of negative volatility but what it means is we can respond. A big thing to keep in mind is that over time, the stock markets tend to be up 70% of the time.
- Right now there is no slam dunk investment out there whether it is cash, bonds, stocks, alternatives, real estate. Every investment has pros and cons. There is no better long-term investment that will increase your wealth and maintain your purchasing power with inflation than stocks. They are better than real estate, gold, and now, crypto currency.
- Remember to focus on the things you control: living within your means, paying down debt, building up rainy day fund in cash. Many of our clients have guaranteed income from Social Security, pensions, and other sources like annuity. Remember they are stable.
We love working with our wonderful clients like you and are incredibly honored to be a part of your team. It is always about dialogue. Our values are teamwork, hospitality, expertise, relationships, and trust. We believe you are in charge and we are part of your team as that financial guide. The key is about having relationships based on trust. Central to that is communication like this. We do not have all the answers but we work to stay informed. The world is an inherently unpredictable place. Uncertainty can be challenging because we crave certainty. We have to stay focused on long-term goals and plan. As Dwight Eisenhower said, “The plan is nothing, the planning is everything.” The world will keep changing and we are here to navigate it with you.