Navigating In A Changing World
A dilemma is defined as, “a situation in which a person has to choose between things that are all bad or unsatisfactory”1. I would guess most of you agree with me, the world seems to change at a faster rate than it once did, and when change is afoot it can seem there are no adequate solutions. Current affairs are continuing to normalize after a worldwide pandemic, rising inflationary rates, a war in Eastern Europe, and here at home a historical Supreme Court session where many decisions seem to have us more polarized as a country.
It is easy to convince ourselves, “We’ve never been here before.” However, if we look at our history, we can find moments where we really have been at a very similar place.
International and US markets have been volatile since the beginning of the year greatly due to the circumstances I previously mentioned. The S&P 500 index closed in Bear Market territory on June 13th which is a 20% drop from its high this year on January 3rd. We know there are many uncertainties, especially as it relates to inflation. Many comparisons are being made to the last such period in the late 1970’s and early 80’s. As a point of reference: In January of 1980 the S&P 500 index was at 110. Today the S&P closed at 3,845. The average annual return of the S&P 500 index from 1980 through May of this year was +8.23% with dividends reinvested, and +5.51% without dividends reinvested. The Consumer Price Index over the same period averaged 3.18%2.
As always there are no guarantees, and stocks do not usually move in lock step with inflation, but they do have a very good track record at keeping us ahead of inflation. This is why we own them.
Remember our definition of dilemma, and my statement of how when faced with one there seems to be no adequate solutions? We have been here before. Nothing has changed, because in the big picture, nothing ever changes. We are long term investors who own diversified portfolios of remarkable companies who have proven their ability to generate earnings which solidifies their ever increasing value. We, and your mutual fund managers, have used cash, or ultra short-term bonds, to purchase stocks (stock mutual funds or exchange traded funds) at incredible prices. This is setting us up to be poised to capture a likely healthy recovery, and be better prepared for our potential next season of growth. It also emphasizes if you have cash beyond your emergency savings (3-6 months of discretionary expenses), and your next six years income needs (or projects and purchases), now is a great time to put it to work.
We continually evaluate your personal financial and investment strategy, not responding to current events, but to stay true to the course we have charted together with you. Yes, we know there is an urge to surrender to the emotions of the moment, but our job is to keep pointing back to stay on course with your current approach. Nothing has changed: create a plan, fight inflation with stocks, and fight volatility with a proper amount of bonds and cash.
This too shall pass. Please let us know how we can talk and walk with you at any time!
1 https://www.merriam-webster.com/dictionary/dilemma
2 https://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html#.YsXNky-B1pR