In the past few months, much has changed. And probably will continue to change. That is how life is. Change is a constant. However, currently it seems the rate of change has accelerated. But for better or for worse? “Maybe”
This reminds me of a Chinese proverb about a farmer many years ago. One night his only horse he used to plow his fields ran away. The neighbors all came over the next morning saying, “How horrible it is that your horse ran away.” To which the farmer replied: “Maybe”
Several nights later, the run-away horse returned bringing three wild horses with it. The neighbors marveled at the farmer’s good fortune, “Now you have four horses, how lucky.” “Maybe” replied the farmer.
A few days later, the farmers son while attempting to train one of the wild horses fell off and broke his leg. The neighbors commiserated, “How horrible your son broke his leg.” To which the farmer replied: “Maybe.”
Several days later soldiers arrived in the village conscripting young men to fight in the Emperor’s War. However, they could not take the farmer’s son due to his broken leg. The neighbors commented: “How lucky your son did not have to go to war.” As was his habit, the farmer’s answer was: “Maybe”
The moral of the story is, that often as life events occur, on the surface what seems to be good may actually turn out to be not so good. Or, events that feel or sound bad in the moment may ultimately turn out to be good.
Much is being said, pontificated, and proclaimed regarding the current changes in both domestic and international policy. Change, generally speaking, is uncertain at best and frightening at worst. Occasionally, change is hopefully anticipated to be a good thing. But more often, our human “reptile brain” conjures up the worst possible outcomes and our thoughts race off to the abyss.
Enough of theory and philosophy. Let’s get real.
No one …. And I mean NO ONE knows for sure the outcome of policy changes, tariffs or threats of tariffs (this time around), closing of entire government agencies, and terminating aid and military support around the world. You, I, and everyone else has a theory. But that is all we have…a theory.
What do we know for sure? What are the facts? The broad equity (stock) market lost about half of its value from the end of 1999 though the dot-com implosion, 9/11 terrorist attack, and Enron’s accounting scandals. It then halved again during the Financial Crisis of 2008 when the global credit market nearly ceased to function. Then in 2020 at the onset of a deadly hundred-year plague that was enveloping the world, the stock market dropped over 30% in less than one month. Finally, don’t forget that during 2022 the stock market was down 25% for a short time period when hyperinflation threatened the economy and the Fed engineered the fastest rate hike in history. All ready bad stuff! Right? Maybe.
Yet, if you had invested $10,000 in the S&P 500 just before the bubble popped in 1999 and allowed it to compound these last 25 years, your investment would have grown to over $66,000 by the end of 2024. Yet at many times during those two and a half decades, it would have been easy to say: “This is different.” Or “We will never recover from this.” Or “I won’t live long enough to recover.”
Four times during the twenty-five years it appeared that disaster had struck. Yet here we are now, six times higher than twenty-five years ago.
The fact is that over the past 40 years, the stock market (as represented by the S&P 500) (1) has a median annualized return of 14% per year and ended up with a positive return in 33 of the 40 years. Yet, over this time frame, the median mid-year decline was 9.6%. Historically, at some point during almost every year the stock market will probably be lower than its January 1st value. However, by the end of the year, 82% of the time, the stock market has made up the mid-year loss and finished the year higher than it started. I am talking historic fact and not making predictions.
So, were each of these four “disasters” horrible? Maybe.
Are the current events ongoing now good? Or bad? Maybe.
What to do now? If you are accumulating wealth and retirement is off in the distance. Then continue to invest as your financial plan dictates or consider investing more if you can. Don’t change your asset allocation without consulting your financial advisor.
If you are no longer working for a paycheck and your investments help provide income for your lifestyle, manage your cash. Attempt to maintain sufficient reserves in cash, money markets, CDs, etc. to cover your income needs for the next two or maybe three years. Talk to your financial advisor about your asset allocation and needs for cash over the next two years.
Then consider putting your phone in your sock drawer, take a walk in nature, sit by the ocean, watch a funny movie, or all of them.
Please, call us with questions, concerns, or if you want to invest your excess cash.
Wollman Wealth Designs, Inc is a financial planning and investment advisory firm in Escondido, CA partnering with families, friends and clients in San Diego County and around the country. Please visit our website, call the office or send us an email with your comments or questions.
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