Staying the Course

Illusion of Safety

For anyone watching the news and/or social media feeds, the desire to hunker down into something "safe" feels totally reasonable.

While the financial world has made an art out of labeling investments as "safe" or "risky," when it comes to you and your money, the only definition of safety that matters is: your ability to achieve your financial goals.

Said another way, if we found the "safest" investment, but you still ran out of money in retirement, was it really the safest?

For example, if you put your entire nest egg into "safe" FDIC-insured CDs, you'd likely never see your account balance go down (known as "principal risk"), but you'd also struggle to keep up with inflation (known as "purchasing power risk"). On the opposite extreme, equities (stocks) have a 200+ year track record of beating inflation and generating wealth, but they also, almost annually, have wild, albeit temporary, declines in value.

So, which is "safer": the investment that never has temporary declines in value (e.g., CDs), OR the investment that will keep up with the reality that every year, everything you want to buy will cost more?

What is "safe" for you and your nest egg is entirely dependent on your financial goals and your willingness to stick to the plan, even when the proverbial storm is upon us. If you can stay invested, then having a 5-year "Emergency fund" of savings, CDs & bonds will, at least historically, take us through the worst of any storm. Of equal importance, leaving the remainder of your nest egg invested in a diversified portfolio of equities (stocks) becomes the "safest" long-term option, no matter how bad the current economic storms may appear.

"The world is too crazy right now, so I need to put my money somewhere safe, at least until things start looking better. What do you recommend?"

Nobody Rings a Bell at the Bottom

Be it the War in Iran, interest rates, inflation, AI, tightening of credit, the political environment, or any one of the thousands of other negative (but no less legitimate) headlines, there can be a temptation to want to invest in something "safe," but only until the storm passes, or said another way: "I'll get back in once things look better."

This seems like a totally reasonable approach, as many things in life, from the weather and traffic to a heated conversation with a friend, can often get much better by just waiting for the proverbial dust to settle.

However, when it comes to investing, specifically in equities (stocks), prices are not a gauge of today's economy, but instead a prediction of what the economy will look like in the future. Think of this like deciding whether you need an umbrella for today's weather vs. predicting whether you will need one 10 years from now.

To use a more specific example, in early 2020, as the COVID outbreak was spreading, the markets fell by some 37% in just 6 weeks. This included three of the ten worst single-day declines in history. Ultimately, this would take the Dow Jones (aka "The Market") to a low of ~18,500 (vs ~48,000 today). In dollar terms, $1,000,000 invested in January 2020 would have declined to approximately $630,000 by the end of March. Had that rate of decline continued (which many predicted), by the end of 2020, you would have had virtually nothing left.

But, as has always happened, long before things started looking better, the markets began to grow again. By the end of 2020, they had recovered all their temporary losses, and the markets hit an all-time high.

While this was one of the fastest and wildest market swings in history, the lesson remains clear: by the time things seem bad enough to 'get out' or good enough to 'get back in,' it's already too late. As such, a far more reliable system is to stay invested in good times and bad, keeping the 5-year "Emergency Fund" full and repeating the timeless words of wisdom: "This too shall pass."

Is it Really the Worst of Times?

If you watched the news for an hour, you might walk away thinking we've never faced this many challenges before. It seems that our Great Nation has become more polarized, partisan, and hostile than ever before. Whatever side(s) of the political spectrum you support, you don't have to look far to see each side slinging vicious attacks at the other side, including the following comments made by US Presidential candidates:

These attacks occurred during the 1800 Presidential campaign between Thomas Jefferson and John Adams. Only a few years later, and partly as a result of campaign attacks, Alexander Hamilton would be killed in a duel with Aaron Burr. Sixty years after that, some 700,000 Americans killed each other in the Civil War.

In other words, political attacks and even political violence have sadly existed for all of American (and human) history.

Why does any of this matter to us as investors? If, after the 1800 Presidential election, you had decided to invest in the future of the United States, despite all its flaws, by taking just $1 (roughly equal to two days' wages for manual labor), and invested it in US companies, your heirs today would have a mind-blowing $26,000,000(twenty-six million).

If, instead, you had decided that things had gotten too partisan and too violent, so you put your $1 in a savings account and left it there, today your heirs would have just $2,500.

We don't have a time machine, but we do have today. And each day we get to decide whether to stay invested in the greatest wealth-creation machine humanity has ever known, or, after 250 years of American history, decide this time really is different and cash out. Our recommendations echo that of the now-retired Warren Buffett: Never bet against America.

Past performance is no guarantee of future results. For ease of illustration, these performance numbers include dividends and ignore the very real impacts of taxes and fees. Performance numbers extrapolated from Purdue University research: 200 Years Of The US Stock Market | Purdue University.

The Commoditization of Miracles

We've all been told that the phone in your pocket has more computing power than the computers that took Apollo 11 to the moon (one million times more, with the Apollo computers not having enough storage for a single photo currently on your phone). But Apollo 11 touched down on the moon in 1969, so comparing it to today's iPhone isn't exactly a fair fight.

Let's try something more recent: the first iPhone was released in 2007. Almost 20 years and 17 editions later, today's iPhone is 20x better by almost every measure, with a price that, adjusted for inflation, has stayed roughly the same.

Even more mind-blowing, every single day, more content is uploaded to YouTube than existed on the entire Earth in 2000. Said another way, one day's worth of YouTube in 2026 would take every single hard drive on Earth just 25 years ago.

But it's not just technological miracles. During this same period of time, the number of people in the world living in extreme poverty (less than $3 a day) has been cut in half, with the majority of those still in extreme poverty located in war-torn regions where humanitarian aid struggles to reach.

According to NASA data, Earth now has 2,000,000 more acres of trees (a 5% total increase) than in 2000, largely thanks to massive tree-planting initiatives in China and India, which previously had to use every available tree for cooking fires.

For more day-to-day examples, when was the last time you stopped to ask for directions, had to look through a physical photo album to find a picture, had to find a thermometer to measure the temperature outside, tried to remember a friend's telephone number, tuned into a radio station, or most recently, had to actually type in your question vs simply speaking it out loud to your Echo device?

In other words, almost everything in our lives was the stuff of sci-fi just 25 years ago, and yet somehow we still manage to remain pessimistic about the future. Certainly, the world today faces unique challenges, but humanity has a really long track record of success, and odds are it won't end today.

Team Updates & Accolades

Additional Reading & Resources

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