“It’s the steady, quiet, plodding ones who win in the lifelong race.” – Robert W. Service
The year 2018 is over, and what is most interesting is how different it was from the previous year 2017. This is a good reminder that every year is different, and 2019 will not necessarily follow the negative and volatile 2018.
When I write or say something like that, I inevitably hear from someone who says “yeah, but it’s different this time. Everything has changed because of X, Y, and Z”. In my almost 28 years working with clients, the fundamentals of diversification,time horizon, and complementary financial decisions around your portfolio have remained the same. And no, it’s not different this time. I’ve been hearing that for 28 years.
Watch my video and/or read the transcript. It’s less than 10 minutes, and will give you a good big picture perspective on how I see things.
Hi There. Mike Brady with Generosity Wealth Management; a comprehensive financial services firm headquartered right here in Boulder Colorado. 2018 is behind us. Thank goodness. Forget about it. 2019 let’s hope for a very happy and profitable one. I’m going to put up on the screen the unmanaged stock market index the Dow Jones industrial average, the one that you hear about the most on TV. What you’re going to see is the first quarter was negative, the second and third quarters were positive and that’s where we wished that the year has ended. But then we had the fourth quarter and it took it all away. In particular December very volatile and very negative month right there month of December.
Depending on what stock market index you want to look at you’re looking at the negative five, negative six percent for the year. When you get a little bit more non-common ones like the SMP mid cap, the small cap and you’re looking at the Russell 2000’s you’re looking at the negative double digits, the negative teens, the negative 12, negative14, 15, 16. And when you look at the international markets, whether it’s Europe, whether it’s pacific they were negative double digits as well, the negative teens depending on what particular country and what particular index. Very few places to hide in 2018. When we look over at the bonds the unmanaged bond indexes you’re looking at negative as well, negative single digit, negative one and negative six depending the percent that you’re looking at for that particular area and that’s kind of a unique situation, but with rising interest rates that’s just what happened for 2018.
Let’s think about it though for 2017, 2017 I sat here 12 months ago and talked with you about 2017. At that point what I said is wow this was an incredibly nonvolatile year, I mean pretty much every week every month was positive and it was a banner year, yay 2017, but it’s not real. Go back 12 months ago and watch that video and that’s what I said I’m like this isn’t reality guys, this is a unique situation that very low volatile no volatile year practically was then followed by an extremely volatile year, which is 2018. So we have these two contrasts two extremes right next to each other, which should remind us that every year is different. Every year is different and in 2019 it could be someplace in between. So let’s not extrapolate out and say wow 2018 was negative and really volatile so therefore 2019 is going to be negative and really volatile. It just doesn’t work that way.
There are many variables in the equation that go towards an economy, currency markets, stock markets, bond markets, et cetera, and anyone on TV or who is filling a headline in the newspaper or magazine that says this is the reason why the number one reason or this is the sole reason is fooling themselves and they’re fooling you and don’t listen to it. There are a number of factors in a multiple trillion-dollar economy and world market and it’s simply not as simple as this is the reason. When we are creating a portfolio, when you as an investor are trying to reach your financial goals it is important that we stack the odds in our favor to the degree that we can. Absolutely nothing is guaranteed in this world. I just want to say that. But what we can do is look at history and say how can we stack things in our favor knowing that the future might be different? And I’m going to say that there’s three things that we can do: number one, stay diversified, have the right timeframe and then look at all the things that are around it surrounding all those decisions. Let me break each one of them apart.
Number one, stack in our favor with the timeframes. Talk about that first. On a daily basis the market is going to be up or it’s going to be down. That’s it. That’s a very short timeframe and I don’t know on a day-to-day basis anymore than you do whether the market is going to be up or it’s going to be down. When we look out to a year we zoom out like a mosaic we kind of get a little bit more perspective, we step back from the wall and we look at a year we say okay going back to 60, 70, 80 years of market data three out of four were positive, one out of four were negative and sometimes those negative years were strung together. I mean I remember in my career 2000, 2001 and 2002 were three negative years right next to each other. Now I will tell you that 2004 and 2005 were good years. I know because I was there. But 2000, 2001, 2002 were negative years, but three out of four are positives. So when we look at on a yearly basis we’re starting to stack things in our favor if what has happened historically was to continue in the future.
When we look at five years has there ever been a time horizon were a diversified portfolio, 50 percent of an unmanaged bond index, 50 percent of an unmanaged stock index together has lost money? The answer is no. I’m going to put that chart up on the screen. When we look out five years, ten years, 20 years now historically the odds have been in our favor when we can hit our particular mark. So it’s important for us to remember that the future could be different, I just want to let you know that. Having a diversified portfolio does not guarantee market losses in a declining market. I just want to say that. But we’re looking at the right time horizon for what you’re looking at from a client point of view.
Diversification, I said that that was very important. That is important. When you see on TV people who have lost everything that makes great news; oh my gosh little older lady lost all her money in this particular stock or this particular shopping mall or scheme, et cetera. That’s why it’s important to not invest in one individual stock or just a few stocks or a shopping mall or whatever it might be, they make great spectacular horrible stories that’s why you avoided them. A diversified market, diversified portfolio, even when we look back at 2008 the recovery period was two to three years. That was the absolute worst that we keep talking about the great recession was two to three years. And when I explained just a minute or two ago about the five-year and the ten-year time horizons that’s important to remember. Even in the worst situation when we kept our eye on the big picture reaching our financial goals that’s how we were successful.
The third thing is what are all the decisions around it? It doesn’t matter if the market is up if you haven’t save enough money. It’s that simple. It doesn’t matter if the market is up if you’re withdrawing too much money. It’s that simple. So you’ve got to know what your withdrawal rate is and what your deposits rate is depending on which cycle of life you are in. If you are older 60, 70, 80, listen I’m hoping you still have a long time horizon. Hopefully you have a time horizon of five, ten, 20 years, maybe longer depending on what your age is. Perhaps you’re investing the money for not just yourself but for your heirs, that’s important to remember that the time horizon then becomes a longer time.
So every year is different. I’m not going to sit here and tell you that 2019 is going to be positive or it’s going to be negative, I don’t know. But what I do know is that I’m a believer in the economy, I’m a believer in the United States for one thing, and I’m also a believer in a diversified portfolio for the long-term is going to be a wonderful thing for the vast majority of people, but only you can really decide whether the time horizon that you have and a portfolio that we’ve crafted together or that you’ve crafted with your financial advisor, if you’re not a client of mine you should give me a call, is appropriate because volatility and risk in my mind are two different things. The risk of you not having enough money, you not saving enough or you withdrawing money or not reaching your goals those are risks. A subset of that risk is volatility and volatility is always going to be there, particularly when we’re looking at things from a short-term. Short-term means days, weeks, even months, but when we start to look at longer multiple year strings together, string the years together, the volatility starts to tamper down because then we can get some perspective of how it fits towards the end goal.
Mike Brady; Generosity Wealth Management; 303-747-6455. Give me a call at anytime. Bye bye.
“I have a lot of things to prove to myself. One is that I can live my life fearlessly.” – Oprah Winfrey
There has been a lot of volatility this year, and in the past few months, almost all of it down.
While I routinely send out a quarterly newsletter and video, due to the extent of the news and conditions right now, I’ve been sending more frequent updates with my current thoughts and advice.
I highly encourage you to listen to my most recent newsletter video (it’s a little over 5 minutes).
Hi there, Mike Brady with Generosity Wealth Management; a comprehensive financial firm right here in Boulder Colorado. So I’m recording this on the morning of December 24, Christmas Eve. I want to talk about what happened last week the week before Christmas and frankly this entire year because this is going to be a trifecta when we look at negative stock market probably for 2018, unless there’s some miracle in the next couple of days with the unmanaged stock market indexes. Same thing with the indexes for the bond markets and for the international markets in general, kind of your developed market international. It’s kind of a trifecta everywhere things were negative for 2018.
I think it’s very natural for people to say why, why did this happen? And just like 2017, which was a very, very good year, people assume that it will continue. Many people thought okay great, 2018 is going to continue just like 2017. That was wrong. 2018 does not mean that 2019 will be negative, it just doesn’t work that way. As a matter of fact going back historically one out of every four years is negative and yes sometimes when the stock market is down the bond market is down as well. That does happen. But the way I like to think of it, and I did this great video, which I might provide a link to, where I say that life is more like poker than it is chess, you’ve got to make sure you get the right lessons from it. Chess is completely strategic, you know, X leads to Y I mean that just is it. At the end of the day the better player will always win at the conclusion of a chess game. Poker is not that way there’s an element of things outside of our control.
The reason why I bring that up is we’ve got to have the right lesson. Just because things are negative doesn’t mean that there was either a mistake or that we should change our particular strategy. If you go through a red light and you’re not hit by another car that doesn’t mean that going through red lights is good. Or if you go through a green light and you are hit doesn’t mean that going through green lights is bad. It just doesn’t work that way. And so when we look at the long-term we have to make sure that we don’t make short-term decisions based on long-term goals. That’s very, very keen. As a matter of fact that’s one of the mistakes that investors have a tendency to make is they let their emotions, I’ve already acknowledged that being scared and disappointed is a very natural thing; we’re emotional human beings. The question is what do we do with it from there? Do we act on those things or do we say I created a plan that allows me to stick with it knowing that there will be highs and that there will be lows. And I believe that there will be more highs than there will be lows and over time historically diversified portfolios. Not those in just one sector like technology, not those just in emerging markets or some place very non-diversified, but in a diversified market historically that has been the case.
When we look back at diversified portfolio going all the way back to 1950 of 50 percent stock market index 50 percent bonds, there’s actually never been a five-year time horizon where we haven’t at least broken even or made just a little bit of money. I’m going to put that chart up there on the screen so that you can see it for yourself. Have there been one, two and three years? Absolutely. As a matter of fact just in the last 15 years we’ve had a couple of those, we’ve had 2000, 2001 and 2002; those years were negative for the stock market followed by a very nice 2004, ‘05, ’06. And then in 2008 it went down again. Very painful. If you had a diversified portfolio your break even was two to three years. These things do happen. These things are things that are hard to see and people who say well I saw it and it was so obvious and maybe even they say I moved to cash because I knew it was going to happen, my experience over the last 27 almost 28 years is those people who say that probably moved out a little too early and they don’t get back in. Yes they might feel all good and all happy with themselves that they moved out, but the better strategy, as I see it, is to stick with the strategy that you have, which was for a long-term. If you need the money next month that’s a problem, you shouldn’t have investments to begin with. However, we look at our life like a business and we have to make decisions, not emotionally, as it relates to things as well.
I’m always here. Mike Brady; Generositywealth.com. Please go and watch some of my other videos. I’m going to provide some links to them as well, but Generositywealth.com; Mike Brady; 303-747-6455. Hope you had a wonderful Christmas. You’re probably receiving this after Christmas to a happy new year. Thank you. Bye bye.
“Never cut a tree down in the wintertime. Never make a negative decision in the low time. Never make your most important decisions when you are in your worst moods. Wait. Be patient. The storm will pass. The spring will come.” – Robert H. Schuller
In response to the recent Dow drop of 1200 points I address recency bias and why it is critical to remain cool as a cucumber in regards to your investment strategy. Piggybacking off my 2018 3rd Quarter Review, I feel it is important to reiterate that it is not a great idea to make short-term changes on a long-term strategy, here’s why:
“Learn from yesterday, live for today, hope for tomorrow.” – Albert Einstein
The third quarter of 2018 has already come to a close and as we look forward to the end of the year, I see no reasons to be concerned. While the first half of the year was a little shaky depending on your investment plan, we’ve seen some very positive rebounds that have served as a great reminder to stay the course.
In this edition of my video blog, I discuss the newest piece of the puzzle and why it’s important to remain calm in regards to your financial plan. You don’t want to make short-term decisions for a long-term goal. Keep the big picture in mind, here’s why:
“Success is nothing more than a few simple disciplines, practiced every day.” – Jim Rohn
Investing and life are more like poker than chess. I recently listened to an interview with Annie Duke. Ms. Duke’s book, Thinking in Bets along with the interview really resonate with me because her thinking is quite similar to mine.
In this quick video, I detail the parallels of investing and poker and why it is critical to keep a “poker face,” keeping your emotional composure during bad….and even good investment periods!
About Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts
Annie Duke, a former World Series of Poker champion turned business consultant, draws on examples from business, sports, politics, and (of course) poker to share tools anyone can use to embrace uncertainty and make better decisions.
I like this book for many reasons, the greatest one being the statement, “Even the best decision doesn’t yield the best outcome every time.” In poker, like in investing, you can make the best decisions but there are still unknown elements at play.
Hi there. Mike Brady with Generosity Wealth Management, a comprehensive, full service financial firm headquartered right here in Boulder, Colorado.
Today I want to talk about how investing and life is more like poker than it is chess. I got a lot of these ideas I’m going to share with you today from an interview and a book that I read by Annie Duke. I’m going to put a link in the newsletter and in the transcript of this. (http://a.co/aw2KM5f) Annie Duke, Thinking in Bets.
And when I heard her interview on this podcast it was like she was speaking right to me because that’s the way I think. And so of course I thought she was brilliant. If you watch my videos going back seven, eight, nine years you’ll hear that I talk in well let’s increase our probability of success. And I think the odds are because that’s really the way life and investing is. Let’s think about chess for a second. Chess there’s these pieces on the board and all of them are visible. You see it and so does your opponent. With all that visibility it’s a completely logical game. The person who is the more experienced, the person who is the better player should always win. And if that person doesn’t win then they can go back piece by piece or play by play and say oh, this is where I made a mistake.
That’s not the case with poker. Let’s talk about poker for a bit. You don’t get to see all the cards so there’s a hidden element there. It’s all a bunch of odds. You might have an 85 percent probability, 90 percent. But there’s still 10 percent that you could be wrong. And it doesn’t mean that you were wrong because the outcome went against you. But there were things that you didn’t know. There were unforeseen things and there is luck. I’m not going to ask you to raise your hand but if I was to say who has run a red light, most of us would raise our hand. Even if it’s only once in our life or if it’s once a day. Just because you run a red light doesn’t mean you automatically get hit although it dramatically increases your odds of getting hit. Just like if you’re following the rules and you go through a green light it doesn’t guarantee that you won’t get hit, T-boned by somebody else. So there are factors outside of our control that we have to understand.
When we’re looking at a poker game, a typical poker hand a professional might take two minutes. Therefore, you might have 30 hands in an hour. And a professional poker player is going to know the odds. They have to work really hard to know the odds, play the game, to be cool. Maybe there’s a string of bad luck that you have but you stick to your particular core knowing that you’re a really good player. You know the odds better than the people that you’re playing against and you just can’t get too emotional one way or the other. If you’ve ever seen a poker game nobody’s jumping up and down when they win or at two, three or four hands they’re getting super depressed. Maybe amateurs are but definitely not the professionals.
So investing is very similar. We can do the best that we can with all the different variables that are known to us we can come up with a strategy. We can say wow, I think the market is going to do this, I think the market is going to do that. And we could be wrong because there are going to be things that are unforeseen that are going to be in the future. Nobody knows the future. So that by definition is going to be a variable that we’re not able to account for fully. Therefore, what do we do? What we do is we, of course, look at a diversified portfolio. We say well how can I not stick my neck out so much that if that 10 percent or that 20 percent or whatever the number is that I’m wrong, I’m really stuck that I’ve lost so much. How much are you willing to risk? So a diversified portfolio is very, very important. Staying in it for the long term. If you find your strategy that works with your risk level, your tolerance, that allows you to stay emotionally cool it’s got to be a long term. If you were a poker player it might be many hours. If you are an investor it should be many years. And so you’ve got to keep that in mind as well.
Life is full of unknown variables so we try to increase our knowledge. We try to increase it so we can make the best decisions. We try to learn from those decisions as well. It is not a chess game. It’s not a guarantee. So if you’re looking for a guarantee then investing in life, you know, you’ve come to the wrong place so you’re never going to get that and you’re going to be continually disappointed.
Mike Brady, Generosity Wealth Management, 303-747-6455. You have a great day. Thanks. Bye bye.
