There are so many things to feel optimistic and positive about, and conversely there are so many things to be pessimistic about. Which you focus on is your choice. We are inundated with data and noise about what’s important and while we could run ourselves in circles trying to address each thing, it’s more important to identify the two or three things that will make the biggest impact in our lives and focus on those.
Each Summer I spend the season at my second home in Dubois, Wyoming. With the new location comes a fresh perspective. Finding practices that can help you cut through the noise and focus on identifying your goals and strategies is imperative. While the market is good right now, it’s always uncertain, keeping your sights set on your big picture will help you weather any storm.
In our end of quarter 2 updates we discuss the key points in our current market.
Hi there. Mike Brady with Generosity Wealth Management, a comprehensive, full-service financial services firm headquartered right here in Boulder, Colorado. Although right now I’m actually at my cabin where I’m privileged to spend the summer just east of Yellowstone, east of the Grand Tetons right next to Shoshone National Forest which is right there. In today’s Zoom world you would think this might be a picture, a backdrop but it’s actually reality. This right here – see that little orange thing – that’s the water well that I had dug about a week ago. See that woodpile. That’s a pretty good looking woodpile. And those mountains back there. That’s the Absaroka Mountains just right outside of the Wind River region in northwest Wyoming. There’s so many things to be optimistic about, so many things to be pessimistic about if you choose. Lots of chaos, lots of data, lots of noise, and I think that it’s important whether you’re running a business like I am, whether or not you’re worried about it for your own personal life for reaching your financial goals that you decide what to focus on. You could sit here and worry about a hundred of them and do a pretty bad job on a hundred, or you could worry about the one or two or three things that are going to have the most impact on what it is that you want. I think it’s important to do that and I do that every summer. What is it that’s the most important thing for the next 12 months and that’s where I am right this second.
So, this past quarter – another good quarter. Sometimes when I do these videos at the end of a quarter it’s sort of like well, let’s not try to overanalyze this thing. Things are going great and let’s take it when we can. So far this year in 2021 it has been positive, very low on the declines meaning that there’s been basically about three or four steps forward and really only one small little step backward. That’s a really good thing. There’s been very little volatility. With the unmanaged stock market indexes like the Dow and the S&P hitting new highs then when they’d go down by 100 points or 200 points, we used to all freak out. Well now because the Dow is well over 30,000, it’s statistically not as meaningful as it used to be.
So far this year most of the unmanaged stock market indexes are right around almost double digits or into double digits positive which is, once again, just wonderful. Who complains about that.
Bonds give or take. This is broad because there’s so many different types of bonds but in general the bond markets are breakeven to negative. If you’ve got a balanced portfolio with stocks and bonds and some cash and stuff like that, of course you’re not going to be double digits most of the time. If it’s just a broad picture here because the bonds have a tendency to bring that return down when they’re down and they dampen the effects of negative stocks in other years. It’s just kind of give and take. That’s why you have a diversified portfolio for those people where it makes sense to have a diversified portfolio which is pretty much everybody.
Up on the screen I want to put something. There is the weight. On the righthand side there, the top righthand corner I’m going to zoom in on that just a little bit. You’re going to see the weight of the top ten stocks is almost 30 percent. So, when we look at the S&P 500 which is an unmanaged stock market index, the top ten are 30 percent. So if they all went down to zero, the market would go down 30 percent. They have a huge impact on the S&P 500 and that has increased over the last three or four years. I mean we know this. Some of the big technology firms have had a huge impact and so they are having even more of an impact today than they did just two-three years ago.
Now, the same thing with that bottom righthand corner and I’m going to zoom in on that. That’s the top earnings so, of course, their earnings have just been killing it over the last 12 months. I mean COVID was very bad for some small companies in particular and very good for some of the big companies. And we’re seeing it right there. In that chart we’re seeing that in the returns as well of the unmanaged stock market indexes.
This next chart I’m going to put up on the screen is – look at that, way over on the righthand side. I’m going to circle it in red. I said at the beginning of the video that it’s important to keep your eye on what are the major things, the major decisions that you need to make. And one of them – the very best advice that you should have had for yourself or, if you listen to me, that I gave you was hey, listen. These things happen. Stay invested in the market. Stay invested for the long term. You don’t let short-term decisions, data, emotions determine what you’re going to do for the long term.
That right there at the very bottom to where it is right now, that’s what we have to keep in mind. It’s the big picture. Don’t let yourself be persuaded by that pundit on TV or your brother-in-law or whoever it might be who’s whispering in your ear to say, “Oh my gosh. It’s different this time.”
I’m going to show in this next graph that three out of four years, historically at least, have been positive. And that’s what we have to keep in mind is the duration that we have for our investments. If you need the money in the short term you shouldn’t have the money in the markets anyway. It’s not the market’s fault, it’s your improperly placing money in a long-term vehicle, money that you need short term.
I’m going to put up on the screen my third chart and the bottom righthand corner there, if we are so focused on the declines of the market we are not going to have the ups of it. If I am so concerned, as an example, of getting into a car accident that I never get into my car, my life is not as rich. My life is pretty darn local because I never leave my house or it takes me an hour to get from here to the grocery store. So, it is risk mitigation. It is not risk elimination. And so when we look at the bottom you can see that when there’s been a decline in the market, it’s followed by a huge upswing as well. Yes, you’re probably saying to yourself, “Wait a second, Mike. Just the math is if I lose 50 percent, in order to break even I have to make 100 percent.” That’s true from a math point of view. This still shows that when the market goes down, it has rebounded back to breakeven and then some and keeps going. And that’s what we have to keep in mind. The hard thing – and many times in our lives is to do nothing. We want to be industrious. At least we’re doing something. Sometimes the best thing that you can do is to do nothing or to stay with your long-term plan even if your questioning it on a short-term basis.
This next thing I’m going to put up on the screen – you’ve seen me show this before – is going back all the way to 1980. So, that’s 40 years. Forty years of data and three out of four years in general are positive. If you look at the far righthand side you’re going to see that the last ten years have had a lot of positive numbers, but they’ve also had the numbers underneath – the ones in red – are the intra-year declines. Those are within the year a step backward. So, if it went up ten percent and then it went down six percent for the year and maybe it ended positive, it went back up. But that negative four percent from the top, the biggest draw down is that intra-year decline.
You can see there for this year it’s been super low single digits. Very positive. Yes, it went high and then it went back down, it went back up, et cetera. Up and down, seesawing around, but that’s the nature of it. That’s the reason why we can’t look at things like a mosaic. You can’t get too close to your face. You’ve got to have some perspective and that is one of the major things that I emphasize all the time is you’ve got to keep the duration, the big picture in mind and what are the two or three things that are going to make you successful. And one of them, of course, is the big picture in mind. The second is do you have the right duration, the right timeframe for that particular pool of money.
So far this has been a great year. Let’s hope it continues. Now we’re hitting some of the summer months – July, August, September, October. A lot of times historically they’re not as attractive but sometimes they’re good. I mean there’s no absolutes. We don’t want to make a short-term decision here based on we don’t need the money in two or three or four months hopefully, so let’s not necessarily freak out.</p?
I’ll continue to have videos throughout this next quarter, but in the meantime I hope that you’re having a wonderful summer and I hope that you are, like me, that you get to change venues. Change something up in your life so that you see things in an even better way than you did before.
Mike Brady, Generosity Wealth Management, 303-747-6455. You have a wonderful day.