“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.