Year’s end is neither an end nor a beginning but a going on, with all the wisdom that experience can instill in us. – Hal Borland
As we close out an eventful and rewarding 2024, Mike Brady, founder of Generosity Wealth Management, shares his insights into the past year’s financial trends and the fundamentals that continue to guide successful investment strategies. From market highs to economic shifts, Mike offers a thoughtful analysis of the forces shaping our financial landscape and provides a forward-looking perspective on what 2025 may bring. Whether you’re focused on long-term goals or navigating short-term challenges, this year-end review is packed with valuable insights for investors at every stage of their journey.
Transcript
Mike Brady with Generosity Wealth Management, a comprehensive, full-service financial services firm headquartered in Boulder, Colorado although we have offices in Fort Collins as well and clients throughout the whole United States. I’m coming to you right now from Boulder.
This is the yearend video. It’s been a wonderful 2024. I’m recording this video right before Christmas and I’m sitting here thinking to myself I’d like to get the video done so what exciting thing could happen between now and the end of the year. Of course, the market drops 1,000 points in one day, but the year is not just one day. It’s 365 days, it’s many weeks and from an investment point of view it’s many years strung together.
This really boils down to some of the fundamentals that I repeat over and over again which is you’ve got to know what your duration is and what your time horizon is for your money. If it’s long that’s completely different than if you need money next week, next month or even next year. That is one of the most important and deciding factors in your investment decisions as you reach your financial goals.
I always like to think of this as what are those fundamentals. We get into the weeds sometimes and I’m going to get into them here as part of my review and a little bit of hey, what are the variables that we’re going to watch going forward. I’m going to come back time and time again throughout this video about what are the fundamentals which is to be invested.
The very first graph that I’ve got up there is by decile. The last 96 years of the S&P 500 which is an unmanaged stock market index. If you look at all those you’re going to see that there’s a skewness, a preference for positive returns. Actually, 73 percent of the returns are positive, whereas of course 28 percent are not positive so zero or down. That’s important because we had better ask ourselves hey, do I have my investments and always worried about the steps back? Do we take three steps forward and one step back? Or do I worry so much about that step back that I also give up the three steps forward? There’s only one percent of the time that it’s been more than 40 percent. As a matter of fact, there’s only six percent where it’s been really horrible and nobody likes those.
Then when we look at all the others it’s painful. That’s why I get back to one of the fundamentals. If you need the money in a short term – a year, two or three – absolutely you should think about the risk level and whether or not that’s something that you would be willing to take.
We have a skewness towards the positive in the markets and in 2024 it was very positive across the board whether it is the unmanaged stock market indexes, domestic or international or the bond index. So, just a wonderful year.
The next chart I want to point out is that’s what we’re looking at from an investment point of view. You’re going to see that last little bit there is 2024. We’ve had a wonderful runup even with you consider 2020. We’ve had a wonderful runup and we’ve got a P/E ratio of about 22 right now. Many times people say well, with a P/E ratio of 22 that means that the markets might come down. I’m going to show this next graph her and it is above average the 22. However, there’s two ways that it can revert to the mean. One is that the prices come down or the earnings go up. I’m going to make a proclamation here today that I believe that the earnings are going to go up to make that number go down and that the price is going down.
I think there are some fundamental shifts going on from an economic point of view, an economic point of view, that we haven’t seen in 30 years. It is all of the advances in technology, especially as it relates to artificial intelligence, the large language models and how that’s going to seep into everything that our economy is doing.
I remember when I was in college in the late 1980s and I used to write out in long form my papers. We also used to have to add and subtract on a piece of paper. Now we have spreadsheets, now we have Microsoft Word or Pages in the Apple world, and how efficient that has made so many businesses that have just propelled the earnings ratio for companies. I think we’re going to have the same revolution going forward in that and we’re just scratching the surface. It’s going to be my belief and what I’m going to say to you is the price going to go down or the earn is going to go up to meet those prices and to justify those prices. I believe it’s going to be the latter.
The Magnificent Seven which are some of the biggest technology firms have done very well. I’m highlighting it there right now which are the profit margins and I believe they are going to continue to stay very nice, if not go higher. This bodes well for those of us that have that long term time horizon.
I want to take a break here for a second. If you say to yourself hey, I don’t have a long term time horizon. My answer would be you probably do. Even if you are 65 years old and you’re about to retire you hopefully have many decades statistically to live. You’ve got to remember that there’s many five and ten year time horizons until you and your significant other, if you have one, might pass on.
If you say I don’t want to take any risk. Even though the probability is historically that it’s going to be positive and not negative and I don’t want to take that risk. Give me a call because there are some investment vehicles out there, some products I suppose, that do have floors so we can find something that might work for you. I don’t read minds so if your mind has changed, your mindscape, your belief, your risk tolerance has decreased or changed in some fashion you’ve got to let me know so that we can adjust accordingly.
Inflation has gone down, which is wonderful. It has gone down and I believe it’s probably going to continue to go down but that’s what the Fed is working on right now. They have just made a proclamation that they’re going to maybe slow down in 2025 and the rate decreases. We’ll see how it plays out. It’s hard to predict out a whole year but, of course, we don’t change our philosophy on what the Fed says in one day for one year. I don’t believe we’re going to see a zero interest rate environment like we have right after the great recession.
As you can see there that I’ve circled and highlighted it has continued to go down over the last couple of years and is expected to continue to go down and I would think that as well. That’s good especially for mortgage rates for those of you who want to buy and sell a house, real estate, people who have existing bonds that’s a good thing as interest rates go down and prices have a tendency to go up for existing bonds so that’s a good thing, especially when we have a portfolio that is stocks and bonds put together.
You’re going to see here especially on that righthand side that bonds had a tough year a couple of years ago – a tough couple of years. The last couple of years have been positive of the unmanaged aggregate of the Bloomberg U.S. aggregate for the bond indexes, but it’s still been pretty lame this year especially compared to what the equity markets have done. It still makes sense to mesh them together because as interest rates continue to go down it’s my belief that the bonds will go up. In the right portfolio it still does make sense. Let’s not get too negative about them going forward.
I think this is one of the key and fundamental charts that we always have to keep in mind. On the one year on the lefthand side is the range going back 50-60 years to 1950 – so I guess that’s over 73 years. The green is 100 percent U.S. unmanaged stock market index. The bond is the middle one, that blue one. The gray is 50/50 unmanaged stock market index and unmanaged bond index shoved together. What’s important is when you look at the 5, 10 and 20 year how the highs go down and the lows come up. We’ve had a 50/50 blended portfolio. There actually has never been a five year time horizon going back 73 years where you haven’t at least broken even and even made one percent. So, that’s what we’ve got to keep in mind. Has there been one year where a blended portfolio has lost money? Absolutely. We can see that by those bars on the lefthand side. If we blend them together we start to have at least historically something that has the worst has not been that bad so that’s what we’ve got to keep in mind.
That being said, 2024 was a wonderful year across the board which follows up to 2023 which was a great year even though 2022 was horrible. We’ve got now that horrible year in 2022, but 2023 and 2024 have been wonderful. In 2025 we have a new administration but let’s not forget the president is not all powerful. I think getting back that the technology changes that we’re going to see filter through from the technology firms, through all of manufacturing and service businesses and changing our daily lives is going to be a motivating factor in 2025, 2026 and going forward as well, but we will see. We don’t change our portfolio for one year. We don’t change because of a new administration. We don’t let our politics dictate our investment philosophy, but it is good to know what the long-term trend might be and I believe the technology advances that we’re seeing is going to be one of the most important variables in the foreseeable future.
Michael Brady, Generosity Wealth Management, 303-747-6455. I hope you have a wonderful new year and have had it by the time you get this, and that we have a wonderful 2025. Take care.
“Life is really simple, but we insist on making it complicated” – Confucius
The first half of the year is over, and the year has been up and down on an almost weekly basis.
There are reasons to be positive, and pessimistic.
In this month’s video, I outline why you should be optimistic, and reasons why you can be concerned. In most areas of life there are pros and cons, but the question is which one wins out on balance.
In this case, and I outline this in my video, the positives outweigh the negatives.
But that being said, the fundamentals of reaching your goals remain the same–diversify, have a long term vision, and keep your emotions in check.
Hi there. Mike Brady with Generosity Wealth Management; a comprehensive full-service financial services firm at headquartered right here in Boulder Colorado, although I’m recording this video from our cabin in Wyoming. Hopefully you had a wonderful 4th of July, maybe you took the whole week off. I came up here for the whole week it’s kind of an annual tradition and it allows need to get some business projects done, but even more importantly to get away from the hustle and bustle of the daily life, get my emotions in check, which is of course one of my big recommendations for my clients and for investor.
I’m going to cut right to the chase of today’s video because it’s going to be a mid year report, but the fundamentals of investing and being successful in my opinion have stayed the same, which is to stay diversified, be long-term and keep your emotions in check. That’s one of the fundamentals and I just think that that’s absolutely important.
Today I do want to talk about what’s happened so far and talk about the reasons for being optimistic or pessimistic for the rest of this year. Nobody knows the future. I certainly don’t so this is my analysis so this is one of the reasons why those three that I brought to you, be diversified, long-term, keep your emotions in check are so very important because when someone says they know absolutely what’s going to happen, the impact of this policy or that policy they know exactly what’s going to happen they’re lying to themselves, they’re lying to you and so I don’t think that anyone is well served by that particular approach. So here so far this year the market was up pretty dramatically in January, continuation of low volatility and good market in 2017 coming into 2018; February and March very difficult. And then the second quarter recovered as some of that, but really was really more in general in the unmanaged stock market indexes and bond indexes basically a flat year so far. Plus or minus a couple percent in my mind is flat.
I’m going to throw a chart up on the screen where you’re going to see is we’re in a consolidation period. The markets go up, down and sideways and so far this year it’s a sideways. It’s always irritating to have; everybody wants the up with no volatility and that’s just not the world that we live in. What we’re seeing right now is a time where patients makes a lot of sense. Those are the people who are rewarded long-term and so remember that as you look at your particular investments and your particular approach.
Now, I’m going to put a number of charts up on the screen and I’m going to talk about some of the reasons to be optimistic, some of the reasons that things could look very good. So let’s go through them. The first one is strong U.S. economy and that’s shown a really above average pace with tax cuts, higher government spending, ultra low unemployment rate, the biggest increase in business investments in years, we’ve had an earnings per share that’s very high and the Fed is normalizing monetary policy, and the last is equity valuations are not as pricey as they were just a couple of years ago. And so this is a good reason to be optimistic and in my opinion, I’m not going to lie to you, the pros outweigh the cons. Here are some of the cons: The price of the oil is back up high in the last year or two; it’s around $75 for a barrel. However, I will also put it into context that it is where it was three years ago and lower where it was four years ago and I don’t remember the stock market being horrible during that time frame. Always up and down that’s just part of the deal, but it is not a travesty. Excessive fiscal stimulus in a full economy could lead to an overheat. Got it. And then the third is the tariffs, which I want to talk about here today.
Tariffs over the last number of administrations they have talked about how the barrier to entry, some of the costs of doing business with other countries is greater than it is here. It’s easier for people to import it into the United States than it is for us to export to other countries. That’s what the tariff discussion is all about. So the discussion is out there, has been out there for a long time, the question is what do you do with it? So one of the reasons why, and I’ll jump to the conclusion on this too, while it’s an irritation it’s a wrench into all of the pros that I just brought up it’s not necessarily a deal killer and the U.S. could actually win on it. Some people say they know absolutely this is horrible for the U.S. or they say it’s absolutely horrible for other countries. The bet that President Trump is making is that others will blink before the U.S. will or before he will. And so one of the reasons why that might be the case is the reliance that other countries that we have had these discussions with and imposed some tariffs on are much more vulnerable than we are. Their stock markets are not doing as well as ours are and their economies are not doing as well as ours. We are the strongest out of all those that we have imposed these tariffs on. Our exports are 12 percent of our economy, whereas in China it’s 20 percent, in Canada it’s 1/3 and in Germany it’s 50 percent. They’re much more reliant on exports to us and to other countries as we are exporting to others. So we only do 12 percent of our economy is based on exports from the United States because we have such a big country, we have such a vibrant interstate commerce from city to city state to state that we are less vulnerable than many other countries.
And so that’s why when I weigh something negative like the tariff discussion and wars against all of the positive it’s the net still going towards the positives than it is on the negative. If you’re only focused on the negative, sorry you’re going to be very disappointed and of course you’re quite dark about that. I on the other hand want to balance both of them and that’s why I’ve come out net on the positive. So I’m optimistic for the rest of this year. I’m not making any changes wholesale in client portfolios, in my discussions with clients, et cetera. Sticking with those particular fundamentals it’s served us well the first half of the year, I think it’s going to serve us well the second half as well. Be diversified long-term, be cool, cool as a cucumber.
Mike Brady; Generosity Wealth Management; 303-747-6455. Give me a call at anytime. Thanks. Bye bye.
“Happy Families are all alike; every unhappy family is unhappy in
its own way” – Leo Tolstoy in Anna Karenina
I’ve been meeting with clients for over 25 years, and every year is there seems to be some major event that causes concern for everyone.
This year, it was the presidential election. One thing about the election that everyone seems to agree on is that we’re glad it’s over, even if we disagree whether the outcome was good or bad.
At the bottom is my end of the year video, where I outline my thoughts on 2016, and also what current conditions might mean for 2017.
I highly recommend you watch it, and if you have any questions, please don’t hesitate to give me a call. I’m here to help and serve.
We’re halfway through the year, and it’s been a volatile one.
Brexit was just 1.5 weeks ago, and don’t forget that horrible January.
And, this is an election year.
What are my thoughts about this year, the big picture, and the election year in particular? Click on the video (6 minutes) for my thoughts.
Transcript:
Hi there. Mike Brady with Generosity Wealth Management, a comprehensive, full-service financial firm here in Boulder, Colorado. Although I have to admit it’s July 4th weekend I’m recording this on Sunday the 3rd and I’m at my Wyoming cabin. You know with today’s technology, internet, cell phone I can run thing just as well here at the cabin as if I was there in Boulder or in downtown New York.
Let’s talk about the year to date. Give or take it’s about breakeven. When you look out a year same thing. It’s plus or minus a couple percent which is how I define breakeven. When we look out three years and five years that’s different. The unmanaged stock market indexes are positive. So far in 2016 this is a great example of why you want to have a mix of stocks and bonds and be diversified. Unmanaged bond indexes have done quite well this year as people have done the flight to safety. And so I think that’s a good thing to have in your portfolio especially this year.
I’m asked a lot about what do I think this year is going to produce now that it’s an election year. This is an interesting election. I have to admit I’ve been in many different elections and this is kind of an interesting one. I did all the stats going back to 1976 and that’s about ten different election cycles, the last one being 2012, the first one being 1976. And on average the election years were positive. Eight out of ten were positive years. And they were followed by the next year on average – so the first year of a presidency that was very good. I mean out of the four years for a presidency it was the second best.
So Peter Lynch one said that more money has been lost avoiding corrections than was every lost in a correction. And what that means is if we allow our motions and our fears to dictate what we do, to get into that particular game of investing, et cetera, then that’s going to have long term negative consequences for us as investors. And I have to just tell you that as a financial advisor I look at some of my peers, other advisors, other investment professionals, a lot of them play up to that fear, up to that emotion because some people have been so scarred from 2008 that every little blip that happens all of a sudden it’s 2008 again. And that’s just not true. I mean 2008 just to put it in perspective was a very unique event. I mean since 1926 it was the top one or two worst events. So it’s not like it’s repeated every six years although it could. I mean I don’t know the future any more than you do.
But one thing that I do want to impress upon you is that let’s look at the big picture and not overcomplicate things. I had a boss frankly who everything was complicated. If something was complicated in his mind that meant that it was good, that it was obviously sophisticated or that this was something that we could show in add value that we’re adding value to a client. If something was simple he’d make it complicated and in my opinion I never agreed with that particular philosophy. That’s not to say that some things that are complicated are bad. It just doesn’t mean that’s necessarily good or that things that are simple can stay simple.
What I might ask you is with all the different options that are out there at this point do you believe that the stock, bonds, mutual funds, investments the U.S. is something that you would like to invest in for over a 5, 10 and 20 year time horizon. If the answer is yes then these blips are things that you shouldn’t lose too much sleep over. These 6 month and these 12 month periods, even two years, are not things that should cause you to stay up at night.
Even when we’re looking at election years and years afterwards at the end of the day either your conviction is that you believe that things are good from an investment point of view because the President, he or she in this case, is not a benevolent despot who gets to choose everything that’s right or wrong in the United States. It’s a very complicated economic and political system of which they absolutely have the biggest pulpit out there. However, you should not make your determination solely upon whether your guy or gal is the winner in the particular election.
I could sit here and give you my prediction for the rest of the year. I’m not going to do that because then that helps propagate that quarter or 6 months as something that we should look at. And so I’m not going to do that. As a matter of fact going forward I think I’m going to stop doing that because I want to keep your eyes on the big picture and the things that are going to probably be the biggest advantage for you which is keeping things in the long term, keeping diversified and keeping your emotions and being disciplined going forward.
My name is Mike Brady. This was my year to date, quarter end review. I hope you’re doing great so far this year. My phone number is 303-747-6455. You have a great day. See you. Bye bye.
The 1st Quarter 2016 is behind us, and boy was it a volatile one!
My video today is addressing the very common human behavior when things don’t seem to be moving in the direction we want.
When we look at the past 2 years or so, we’ve been in much of a “sideways” market, seemingly without a lot to show for it. The tendency for many investors is to “do something”, but I highlight in the video that proactively doing nothing is an active choice! Don’t be lulled into a false sense of achievement and unnecessarily move things around just so you feel like you’re doing something.
Another good video (if I do say so myself!)
Click on the video
Transcript:
Hi there. Mike Brady Generosity Wealth Management, a comprehensive full service firm right here in Boulder Colorado. Want to talk about the first quarter of 2016, but I also want to talk about the human behavior that we bring into up, down and sideways markets. When we look at a two and a half year time horizon it’s really been a sideways market interspersed with some down and markets in between there. And so what does this really cause many of the average investment investors to do? And I want to talk about that, also the non-linear nature of markets.
Let’s talk about the first quarter 2016. I’m going to put up on the chart there the unmanaged stock market index, the Dow Jones, the most common, but because it’s the best but only because it’s the most common. What you’ll see is that it went sharply down for about six weeks, all the way down to about 15, 666, and then now it’s on it’s way closer to 18,000. Who knows if it’s going to hit 18,000. But that’s a huge variance there. And if any kind of a diversified portfolio with some stocks and some bonds mushed together probably didn’t see the huge down like that 100 percent stock market index, but also probably didn’t see the huge up on the way up as well. And so it’s good to remember that most people don’t have 100 percent of their portfolio in just stocks or the Dow Jones so it’s hard to always correlate exactly what you’re doing with some kind of an unmanaged stock market index.
If you want 100 percent of the market one way or the other there are various indexes and ETFs that you can go into, but the reason why we have portfolios or why most people have portfolios is they like the dampening effect so that they’re not getting all of the down or all of the up. So so far this year, give or take a few percent, it’s about break even after being sharply down just seven weeks ago.
I will tell you that I did a video about two months ago and at that point I was very calm. And one or two clients that I’m very close with said, “Mike, how can you be so calm? Every day it seems like there’s all this bad news and the market lost 200 points here and eight days in a row had lost or however many days in a row, how can you be so calm?” And my answer is after 25 years I’ve seen, I’ve seen ups, I’ve seen big swings of multiple days and weeks and months of being up. I’ve also seen downs. I’ve seen 2000, 2001, 2002 that was three negative years in a row. I mean I’ve seen this. And as a matter of a fact I kind of expect at some point that there’s going to be declines. That’s just part of the deal and so that when it happens I’m not so surprised. Markets are non-linear and what that means is just because it’s down for one month doesn’t mean it’s going to be down for the entire year, or if it’s down for a week doesn’t mean the next week it’s going to be down. And, of course, the opposite is true too. Things go up, they go down and they go sideways. And one of the dangerous things is when it is sideways, meaning that when you look back a year or two or even three and you haven’t really made much money as an investor or a portfolio and it’s just kind of middling around, there’s this tendency to want to do something. I’m going to put up quotes up there “to do something”. There’s obviously something that we’ve got to do. And I would say that idling is part of the deal. I mean it’s sideways, down and up and the important thing from a behavior point of you is to be cool as cucumbers when it’s down, if you believe that over the time horizon, and hopefully the time horizon is at least five years, that it will be higher. It’s absolutely cannot guarantee.
All I can really say is I’m going to put a chart up on the screen and what you’ll see is on the second and third grouping of bars that a diversified portfolio has always at least broken even over a five and ten year time horizon going back to 1950, but it could be different in the future. Once again, by definition the future is unknown. That’s why they call it the future.
So, that being said, I think that it’s important, particularly when it is a sideways and maybe we’re not making much money we’re just in a holding period, not to just get so anxious and get frustrated and try to be moving around because one of the other things that I’ve learned is that people want to move so that they feel like they’re doing something when sometimes the calm professional is saying we’ve looked at everything and doing nothing is a proactive choice. Not moving things around just to feel like we’re doing something but really not getting anywhere, let’s avoid that. Let’s avoid the false feeling and the false hope of moving things around just for the sake of feeling like you’re doing something. And I have to tell you that I think that some of my colleagues, my peers sometimes do that. If they’re not moving things around clients feel like they’re not doing anything or earning their fee or whatever it might be and I think that does a disservice to the client; that does a disservice to the investor.
That’s all I have for today. I wanted to make it real short. I’ve got all the quarterly statements out hopefully by the time you get this newsletter. I’m also taking a – I’ve sent an email out to all the clients that I’m taking a two week vacation, first one in a couple of years. And so I might be a little slow on responding but I will be able to respond via email and phone if necessary. But that being said, if you could hold off until after April 14 I’ll be happier and hopefully you’ll be just fine. 303–747–6455, always open to any concerns, questions, criticism, anything just give me a call; I’d love to open up the dialogue. Mike Brady 303–747–6455. Thank you. Bye bye.
The last month has been interesting to say the least. This is a wonderful time to ask yourself
Are you an Investor or a Trader?
The mindsets are completely different, leading to different behaviors, and different outcomes.
I ask this question in my video this month, talk about the differences, and let you decide by the end which of the two you are.
So, what do you think? Are you an Investor or a Trader?
Click on the video
Transcript:
Hi there. Mike Brady with Generosity Wealth Management, a comprehensive, full service financial firm here in Boulder, Colorado. Today I’m going to ask the question and by the end of the video hopefully you’ll answer it for yourself. Do you have the mindset of an investor or as a trader? Because they are two different mindsets. An investor is long term, a trader is short term.
Let me talk about a few things in order to help you answer that question. When I talk with people – when the market goes down and I talk with people and perhaps I hear some trepidation, some concern, some worry, I think unconsciously they’re worried about losing everything. Their hard earned savings all gone. They go from having money to nothing. Unconsciously even if they don’t even know it themselves that’s what’s going through their heads.
Let’s talk about some situations on TV or in the newspaper that you’ve heard about where that has happened because that does happen periodically. First off it’s usually a sweet lady or a sweet couple, okay. And they’ve invested everything into maybe a single stock. They’re completely undiversified. And many times that might be something that is exotic. They invested everything in some gold that maybe their brother-in-law or their son-in-law convinced them to buy. Or maybe it went all into one sector like technology or Internet. Or maybe they bought something like coins and then they lost it all and they found out that it was a scam. Many times included in this story is non-liquid. Maybe they bought into a shopping mall and that shopping mall, you know, come to find out is filled with asbestos or something bad and they lost everything. Or it was some kind of a private investment that went belly up. And so I think that these are some of the most common themes when you see people lose it all on TV or when you hear about that.
So therefore let’s talk about that. What are the lessons from it? One, hey if you’re a sweet lady and couple you can stay that. That’s cool okay. But all the others we can avoid, okay. Let’s not go into individual stocks. I am a firm believer in diversification and while we’re in a general decline market diversification does not guarantee against losses, okay. That’s one of the disclaimers we have and it’s true. I’m going to talk about why diversification does make sense.
You shouldn’t go into things that are exotic, okay, in my opinion. Gold and tech and coins and things of that nature. Instead invest in those things that are the market. I talk about the general stock market and the general bond market whatever that mix might be for you specifically in your situation. And I believe that liquidity is very important. And understanding that when you are illiquid if it turns against you you can’t get out of it. And so knowing what your liquidity is and how quickly you can convert to cash if you feel that you’ve erred in our choice of those things.
So one of the other things that I think people do is they feel that the market is linear, okay. And when I mean linear that’s, of course, means a straight line. And it just doesn’t work that way. When a market has gone down five percent it does not mean it’s going to continue to go down another five percent. You can’t annualize. You can’t take a short time and make it a big time. And, of course, the reverse is the same thing. You can’t take well the market went up five percent so therefore it’s going to end in a year at 10 percent of 15. You just can’t do that. Just because it went up doesn’t mean it will continue. Just because it went down doesn’t mean it will continue. As a matter of fact, the market has a tendency and I’m going to show a graph later on to go up and go down. And so therefore if you believe that Point A is here and Point B is here, okay, further out then it’s going to be wavy along the way. And so the higher it goes the sooner it is to a downturn. And the sooner it is when it’s going down the sooner it is to an upswing. So that mentality I think is very, very important.
But let’s pretend like what we’re seeing right now is 2008 again. Let’s pretend like that’s the situation, okay. I’m going to put up on the screen there a graph and I’m going to try to highlight it, make it really big. But if you had invested in the S&P the highest point. You had three different portfolios there, a 60 percent stock and bond or a 40 percent bond and stock or a 100 percent stock market index the S&P 500. You invested spectacularly in October of 2007 at the worst time. And you went through the decline of 2008 which was the worst decline in the S&P 500 going back except for the early 1930s, okay. So it was the absolute worst and definitely in our lifetime, for most of our lifetimes.
And so two year breakeven on a 40-60 split. You know you had absolutely horrible timing or you invested and then you gave some of that up, some of those gains. Two years later you broke even, okay. Okay. I mean if your time horizon is two years you shouldn’t have any investments in my opinion except for cash or extremely short term instruments of some type – CDs, whatever it might be. But even if you’re retiring today or you just retired hopefully your time horizon is many decades. I’m hoping you’re not dying in two years or three years or four years. None of us know of course the future but hopefully we are going to have many many years, okay. And so that is very important.
If you had a 60 percent S&P 500 and a 40 percent bond index your breakeven was three years. I mean that’s on the worst in our time, okay. I’m going to put up on a chart there the time, diversification and volatility of returns. You’ve seen this before if you’ve paid attention to my videos which I certainly hope you have. And so at the first band of bars is one year, second is five years, third is 10 years and then 20, okay. And so the first bar is 100 percent stock market index. The second one is 100 percent bond index and that kind of ugly brown is a split of 50-50 stock and bonds.
So what you’re going to see is going back to 1950 – 1950, okay. That’s 50, 60, 64 years, 65 years, okay. We just finished a year. Sixty-five years of returns a diversified portfolio of stocks and bonds squished together like that. The worst that you’ve done – the worst – not the best, the worst is one percent on average per year. And you can see from that previous chart that sometimes there are years where you’re negative, okay. I mean you are not entitled to positive returns every year when you are invested hoping to get good positive returns over a long time horizon. That is part of the deal. If your time horizon is very short well that might be different. You’ve got to consider why the heck am I in some stocks and bonds if I need this money in a very short amount of time.
As you go out 10 years and 20 years the same, you know, has it normalizing. It continues to go – the absolute worst is making a couple percent a year on average, okay. That’s the worst. And the best is of course much better. This includes that 2008 timeframe. This includes the tech bubble. This includes 1987. This includes the 1970s which were pretty horrible. I was alive in the 70s but I was a young kid. I’m 47 so – almost 47, okay. This week. Send me a birthday card.
So I want to show a graph right there. You see it up on your screen. This is going back to 1926 and this includes the Great Depression. This includes the great recession, okay, of 2008. And what you’re going to see is 73 percent of the time we had positive years. Three out of four, okay. And then when we add in that one bar there of zero to 10 percent this is how the year ended by the way. Almost nine out of ten years are positive. Not 100 percent. You can see on the left hand side one and two years, you know, out of 89 years were the really bad ones that we really, really hate – negative 30 and 40 and 50 and 60. Oh, those are horrible. We hate those. But they’re very infrequent. That’s the point, okay. And even when they do happen, even when they did happen if you had a diversified portfolio then the recovery period was very short. And so these are one of the things that we as investors have to understand.
Going forward it could absolutely be different. Anyone who tells you that they know the future is lying to you and trying to sell you I don’t know – a sack of potatoes or something. And I’m not trying to do that to you. I’m trying to be as realistic as I can understanding that we live in uncharted territory. And by definition the future is uncharted territory. Which is one of the things that I want to talk about. I mean every once in a while someone will say to me yeah, but it’s different. I mean you can’t really say that the 1950s and 60s are the same thing as 2015 or 2016. Yeah, absolutely. I totally get it. And 2008 is not the same as here, okay. Every year is different and every year there is always something whether it’s the downgrade of the government by the S&P, you know. The trip way down. Whether or not it’s a war. Whether nor not it’s the concerns about a war. Whether or not it’s quantitative easing or it’s not or it’s tightening. Every year I could sit here and point out a year and I’ve been doing this for 25 years.
I like to think of it like the presidential election. You know how every four years you hear well this is the most important election of our lifetime. I don’t know. After a while it starts to lose its impact on me because if every four years is the most important of my life, darn, you know, they’re all important. I get it, okay. To say that they’re all the most important and it’s the same thing with an investment, right. You looking at it from a long term point of view and do you believe that Point B, that future, is better than it is today. If the answer is no then that’s your own choice to do then why do you have any investments whatsoever? I mean really why do you have any?
So I believe that every year is different, okay. However, history does have a tendency to repeat itself and that’s what we are working on. And I believe that I’m still very bullish on the markets and I do believe in diversification. Gold, silver, commodities. I don’t like them, never have. Essentially they are very, you know, let me just tell you a little insight. They have a tendency to go up with inflation except when they go opposite, okay. And they really go up when the stock market goes down except when they go down with the stock market too. I mean I hate the correlation. They have a tendency to have a mind of their own and I’m just not – and I don’t think that true investors are going into something that you have no control over like a commodity of gold and silver and things of that nature.
Let’s not forget that the pundits that you see on TV, that you see on any of the cable news or at the end of the day, their job is to get you excited. They’re sort of like when they cover – like a politician. A politician who’s trying to win election is there for hey look at me – bright, shiny light right on me. Their job is to be entertaining and to tell you maybe what you want to hear. Maybe get into your fears and also feed your hopes, okay.
I’m like a policy wonk, okay. I’m sometimes boring. You’re like gosh Mike, you know, why do you have to say that when it’s exciting to get maybe ignore and then overreact. And that’s just not me. I’m here to try to be as upfront and try to be as non-emotional as I can. Still being passionate – hopefully you get that as you listen to me. I have passion for what I do but I want to be non-emotional. And so getting back to my original question an investor is someone who looks at things from a long term point of view, understands that the decisions that you make, your behavior, is probably going to – your behavior and how you react to it or not emotional as you look towards to the long term. You know what? Ups and downs are a part of it. A trader on the other hand is always looking for well what about this and what about that. Always looking for maybe a short cut, maybe a get rich quick scheme. And also worried about these fluctuations that are going to happen. They will always happen and they always have, okay.
And so I want you hopefully to be an investor versus a trader. But if you want to talk about it some more you give me a call. (303) 747-6455. Generositywealth.com. Great to talk with you today. One month, one six months, one year. You know what? When your time horizon is multiple years and hopefully multiple decades it really doesn’t matter. In the whole scheme of things it doesn’t matter. Find something that allows you to stay with your plan. That’s what’s important I think. Anyway, have a great day. We’ll talk to you later. Bye bye.
I think this is one of the key and fundamental charts that we always have to keep in mind. On the one year on the lefthand side is the range going back 50-60 years to 1950 – so I guess that’s over 73 years. The green is 100 percent U.S. unmanaged stock market index. The bond is the middle one, that blue one. The gray is 50/50 unmanaged stock market index and unmanaged bond index shoved together. What’s important is when you look at the 5, 10 and 20 year how the highs go down and the lows come up. We’ve had a 50/50 blended portfolio. There actually has never been a five year time horizon going back 73 years where you haven’t at least broken even and even made one percent. So, that’s what we’ve got to keep in mind. Has there been one year where a blended portfolio has lost money? Absolutely. We can see that by those bars on the lefthand side. If we blend them together we start to have at least historically something that has the worst has not been that bad so that’s what we’ve got to keep in mind.