“By staying calm, you increase your resistance against any kind of storms.” – Mehmet Murat Ildan
Every single year there is some kind of market volatility. It is normal for there to be ups and downs. Therefore, preparing ourselves for it early on is the key. We know it’s going to happen, so we will have a multiple year strategy in mind at all times. And if there are any concerns, of course, you’ll call your favorite financial advisor Mike Brady!
Hi there. Mike Brady with Generosity Wealth Management, a comprehensive, full-service financial services firm headquartered right here in Boulder, Colorado.
Last month I did the year end review and it was a little bit longer so this time I thought I would talk shortly about a topic that I know is going to happen in 2020 which is volatility. I’m big into setting up expectations. I’m big into controlling our emotions and having a plan. The reason why I bring that up is in 2020 like every single year there is some kind of volatility. It is normal for there to be drops in the market. There are ups, there are downs.
I’m going to put a chart up on the screen which shows the market going back decades, and you’ll see on the bottom below the axis there are red numbers. Those are the intra-year declines and it is normal for there to be intra-year, within the year, declines in the stock market, the unmanaged stock market indexes, of double digits or more, 10 percent or more.
I’m recording this at the very end of January and, of course, you’ll get it the first part of February and nothing has happened so far this year. However, we have 11 more months. We have an election. We have many different things. We have a global economy that’s very complex. But one thing that I can almost guarantee is that the market will go up and down at various times. And our reaction to it is going to be much more impactful to reaching our financial goals than that actual event of the ups and the downs. That’s my opinion at least.
Therefore, setting ourselves up now and saying okay, great. I know it’s going to happen. I’m going to be cool. I’m going to have my multiple year strategy in my mind at all times. And if I ever have any concerns, of course, I’ll call my favorite financial advisor Mike Brady.
That’s what I want to talk about this year so when it happens don’t be surprised. With the market as high as it is right now, hundreds of points on the unmanaged stock market index, the Dow Jones Industrial Average doesn’t mean as much as it used to frankly, 5, 10 and 20, 30 years ago. We look at the percentages, we know it’s going to happen but we keep the long term vision in mind. What I believe is one of the key ingredients to long term success is keeping our emotions in check, keeping the big picture in mind and really looking at how are we going to reach our financial goals not only with our investments but with all the financial decisions that are going on in our lives.
Mike Brady, Generosity Wealth Management, 303-747-6455. Thanks. Bye bye. Have a wonderful week, a wonderful month. We’ll talk to you in a month. Bye bye.
““It’s good to have money and the things that money can buy, but it’s good, too, to check up once in a while and make sure that you haven’t lost the things that money can’t buy.” —George Lorimer
Each of us has an emotional and a logical side- in investments the emotional side can present biases in our thinking. As we get into the thick of things in terms of elections and leadership, I hear more and more political biases crop up with clients, investors and friends. No matter what side of the aisle they sit, they believe “my” person needs to win for the market to go up, or if “my” person loses it will go down. However the stats all illustrate there is no correlation between that political bias and reality. Let me show you:
Hi there. Mike Brady with Generosity Wealth Management; a comprehensive financial services firm in Boulder Colorado. Today though I’m recording this video from as I call it Generosity Wealth North, which is in Dubois Wyoming. This is where I like to spend a lot of time over the summer. It allows me the opportunity to get away from the hustle and bustle, focus on the business, what are my values, what are my beliefs, what are my core tenants of the business, of who I am as a person, how I interact with clients, all of these various things. And right behind me is the view from the south, so this is actually out of our bedroom, which is our cabin is right behind the camera. You’re going to see this is a ranch, a guest ranch and there’s a, well you probably can’t see it but there’s a little pond over there and our good friends the Prines have been there for five generations. We’ve had this cabin here for, my wife has had it for 45 years; her father got it in the early ‘70s, so almost 50 years.
Let’s get down to business. It’s my belief that we have a logical side and an emotional side in our lives and the way that we approach decisions and so, the problem is when one gets out of whack. So, if we’re all emotion then we’re going to be – I think we all know somebody like that who makes every decision on emotions and they’re just going through life in that regard. We know some other people who are all logic. We’ve got to have a combination of the two and I’m going to expand upon this in a future video; I’m not going to really talk too much about it today. But, it’s important for us to know what our biases are. That’s the emotional side of our investing. I would actually say that the logical side, the mathematics is pretty good from an investing point of view. Not good, it’s the easy part. The hard part is our emotions. We’re human beings.
What I’m hearing right now is a lot of political bias from various clients. And I’ve been doing this for 28 years. As a matter of fact, I got my licenses in August of 1991 so this is exactly my 28thyear of meeting with clients. And what I hear from people on both sides of the aisle, whether Democrats, Republicans, et cetera, is your rooting for your guy, which is fine or your party, you know, your political view, but you’re extrapolating that into what the market is going to do. So, if your guy wins or gal, your person wins, then the market is going to go up or the other person wins then the market is going to go way down. And I’m here to say that historically speaking that has not been the case. I don’t know the future any more than you do so when I look at some percentages I think it’s important for us to acknowledge that it could be different in the future. All we’re saying is what has happened historically.
Up on the screen what I’m putting up there is the election cycle years going back 82 years. Historically speaking the worst has been the year after the election and at 52 percent of those years have been positive going back to 1933 all the way up to 2015. And if we were to include 2017 that was actually a positive year. That was the year after the most recent election, but this is the graph that I have. When we go into the pre-election year, which is that second bar graph over the third one over, is 90 percent of the years, I like it, this year have been positive, with an average return of 16 percent, which is pretty remarkable, pretty remarkable when you think about it. The election year, which would be something like next year, 2016, 2012, 2008, et cetera, 70 percent of them have been positive and, of course, 30 percent negative with an average return of about 4.9 percent.
Let’s go over to the next graph that I’ve got on there. What you’ll see is pre-election years, like we are having right now, the worst going back 82 years has been a few percent loss.
Election years like next year we’re going to see, that’s the next graph on there, the vast majority of them, 70 percent of them have been positive, you can see some have been negative, usually single digits, except for 2008; that was the financial crisis. I would argue that that had very little to do with the political, it just happen to be in an election year cycle. It could have happened in 2007 or 2009, it just happened to happen in 2008. So, the fact that it was an election year or any kind of a stamp on the current president at that point I just don’t believe. I think that the logic, the data is there to say that it was going to happen one way or the other no matter who the president was.
Post-election years is the next graph that I have up there. You’re going to see the majority of them are positive, 52 percent of them. Which when we really look at all of the years together I mean it kind of makes sense that most of the years are positive because you’ve heard me on previous videos that say that three out of four years historically have been positive and so we ought to have that mindset, assuming that we believe in the markets, we believe in the United States and in the world and that this is the best place for our money, why else would you have money in the markets if you didn’t think it was going to go up long-term.
So, I think that it’s important to remember that you can see that from a correlation point of view, whether or not let’s go back to the post-election year whether or not it was a democrat or a republican you can sit here and cherry pick whether or not you think that your guy or gal was the reason for that or your particular party.
It’s just not it.
One thing that I hear as well is a lot of people saying well in the last two/three years have been incredible for the stock market, which it has. Hey, listen, it’s been a real good run. I have to say that there were people in 2016 that said if Trump was to win the market is just going to plunge. Well you know what, the exact opposite happened; 2017 was a very non-volatile year and very positive for the markets. 2018 more volatility. 2019 so far this year, very little volatility historically speaking and a very nice positive year. So, we’ve had two of the years so far positive, one year not so good. But here is a graph that I’m putting up on the screen, which will show the top graphic is how many months after the election for Obama. The bottom one is how many months after the election for President Trump. Listen, I don’t want to take away from anything that President Trump has done, but I’m just saying that we have to keep these things in perspective that Obama, from a market point of view, really had a tough time at the beginning of 2009. I would argue not his problem not his fault, that was a continuation of the bad 2008, but then it really kind of rallied through ’09, ’10, ’11, ’12. I mean remember were you there paying attention? I know I was. Nobody wanted to invest in equities. I mean everyone was so negative so negative that was the time to be positive and those that invested in ’09 heavy were the ones who were the big winners.
For Trump over the last couple of years you can see those years it’s been positive. Great. I want to say that that has proven that those people who said it was going to be negative because of him and a volatile person, individual, et cetera, no that’s not true. You can say maybe it was because it was a continuation of Obama. Okay. Whatever. But the fact is that it is positive but it hasn’t been as great as all of those who give all the credit to Trump or those who say no it should have gone negative it actually went positive. What you’re seeing here is a lot of not duplicity, a lot of hey, this is what is going to happen, lack of humility and the opposite happened many, many times, or there’s no correlation. If you’re looking for a pattern, our brains have a tendency to do that, you’ll find a pattern. I’m saying I don’t believe that there’s a pattern and this is how I view the world.
Mike Brady; Generosity Wealth Management; (303) 747-6455. Give me a call anytime or an email. Frankly, you won’t know if I’m there in Boulder or I’m up here in Dubois because I am all electronic up here with no problems. I’m going to end it with a little pan of the rest of the valley. You have a great day.
“Being rich is having money; being wealthy is having time.” –Margaret Bonnano
It is important to take a macro versus micro approach to investments, meaning we have to take a very big, long-term view in order to start to make some sense of the stock market. There are many variables in this equation that we call the market and only by looking at it as we would approach a mosaic by looking back months and even multiple years does it start to make sense.
Listen for more on how to keep perspective when looking at the market.
Watch my short video or read the transcript below.
Hi there. Mike Brady with Generosity Wealth Management, a comprehensive, full-service financial services firm headquartered right here in Boulder, Colorado.
Today I want to talk about making sense of things. I was meeting with a client a week or two ago and he said Mike, it doesn’t make any sense in the stock market. It’s something that I don’t understand. It goes up high one day and down the next day for a reason that I can’t understand. And my answer to him was stop trying to understand it. Stop trying to understand it on a daily basis, a weekly basis, even a monthly basis because I don’t know the future, you don’t know the future and for us to try to guess the emotions, the intents, the actions of millions of other people is very difficult.
We have to take a very big, long-term view in order to start to make some sense of the stock market. If we’re looking at it from a daily basis, one day if you listen to the newscasters or read some article they always have some reason why it went up like they know definitively what millions of people are thinking. The next day it might completely reverse and then they give a different answer that might be very similar. No, not that many people change from day to day. There are many variables in this equation that we call the market and only by looking at it as we would approach a mosaic by looking back months and even multiple years does it start to make sense.
So you have to look at yourself and your own emotions and say wow, am I going to allow myself to be whipsawed from day to day, from week to week, or am I going to take the long-term view. And your bias is very important to know. If you’re a naturally optimistic person I would argue that history has shown you to be a winner in this because three out of four years going back to 1929 the market has been positive. One out of four years have been negative. That doesn’t mean the future is going to be that way. All I can really say is that historically that has been the average when we look at many multiple years, many five-year, ten-year and twenty-year time horizons. Those that are pessimistic and are trying to time the market are worse off than those that say hey listen, I’m going to take a long-term view. On average I am going to be the winner. Sort of like going to a casino and you get to be the house. You don’t get to win every single hand but over time you certainly are the winners.
And so the future is never certain. It could be different in the future but this is what I think would be a better approach for most people.
Mike Brady, Generosity Wealth Management, 303-747-6455. I’m always here if you want to talk. Thank you. Bye bye.
“Money is only a tool. It will take you wherever you wish, but it will not
replace you as the driver.” -Ayn Rand
From a horrendous 4th quarter in 2018, to a complete 180 in merely the first month of 2019 it’s still important to keep your sights on the big picture.
It’s easy to be optimistic when the market is going up. It’s harder when the market is going down and all those reporters on TV are giving you all the reasons to be negative. That’s why we have to look at the underlying valuations, the underlying data, the money flow, the money velocity, the corporate earnings to look at what’s the real truth here. What’s the true story?
Watch my video and/or read the transcript. It’s a quick one, under 5 minutes and I continue to illustrate why it’s critical to keep your emotions in check.
Mike Brady with Generosity Wealth Management, a comprehensive, full-service financial services firm headquartered right here in Boulder, Colorado. Recording this on Wednesday, January 30. It was right here a month ago that I recorded my year end video and at that time I was talking about what a horrendous December and fourth quarter of 2018 we had. I talked about how 2017 had very little volatility and was strongly up for the unmanaged stock market indexes. In contrast it was followed by 2018 which had all kinds of volatility and was negative with, well the fourth quarter in December really going downward very sharply with huge volatility.
1 Year DJIA
So far in 2019 the month of January has shown another reversal. What great examples that every year is different. I’m going to show you a graph that shows the last 12 months and what you’ll see is so far this year we’ve made back much of what we lost in December and the fourth quarter of last year.
5 Year DJIA
It is important to have a diversified portfolio. It is important to keep the big picture, the long view in mind. Here is a five year graph and you can start to see how one year is not the entire picture. It’s just one piece of the puzzle. And if you only look at the one piece of the puzzle it doesn’t really make sense. Like a mosaic you have to step back and have some perspective for how the pieces, how the years add up toward reaching your 5, 10, 20 year goals.
If you’re older in life you might say wait a second, I don’t have a long view. No, even if you’re retired you don’t want to outlive your money. So whether you’re in the accumulation phase or whether the withdrawal phase of your life with your portfolio having 5, 10 and 20 year points of view is very important.
I believe that there continue to be reasons to be optimistic. It’s easy to be optimistic when the market is going up. It’s harder when the market is going down and all those reporters on TV are giving you all the reasons to be negative. That’s why we have to look at the underlying valuations, the underlying data, the money flow, the money velocity, the corporate earnings to look at what’s the real truth here. What’s the true story?
Let’s say that I am wrong. Let’s say that we continue in the unmanaged stock market indexes to have downward and maybe more volatility as well. That’s the reason why we have diversified portfolios which doesn’t guarantee against losses in declining markets. That’s why we have though a long term view.
So what I would say is let’s get out of our own way. Let’s keep our emotions in check. The mind has a tendency to have a bias toward making patterns where there might not be a bias. We lay on the grass on a nice summer day, look up at the clouds and we’re finding hey, there’s a dog, there’s a building, there’s this famous person right there in the clouds and we are certain that’s what it looks like when, in fact, our mind is creating patterns where there is no pattern. Let’s not do the same thing in other areas of our lives including our portfolios and in the markets.
Mike Brady, Generosity Wealth Management, 303-747-6455. Call me at any time. I’m here to talk about how this is relevant to what you’re doing in your specific financial goals. Here at any time. Thank you. Bye bye.
“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.