How Well Do You Remember?
The Tech Bubble, Y2K, 9/11, The Great Recession, Lehman Brothers bankruptcy, BP Oil Spill, S&P downgrades U.S. Debt, Ebola, Brexit, Yield Curve Inversion, COVID, Inflation hits 40-year high, Silicon Valley Bank failure, etc…
We vividly remember all of them…
Yet, the markets continue to climb and reach new all-time highs and selling your ownership of a low-cost diversified portfolio of enduring companies (shares) would’ve been a very costly mistake.
However, quite ironically, if you listen, watch, or read the news, they’ve been quick point out all the reasons that you should sell.
The BAD News
Pain is coming, it’s inevitable.
Call it whatever you like: A recession, correction, crash, blip, depression, etc…
We have no idea know why (e.g.: geopolitical event?) or when this will happen, but based on history, we know it’s coming.
The GOOD News
Your financial plan already accounts for whatever’s to come.
In fact, as a Know My Plan client, we’ve discussed it, and you know it’s baked into what we do.
We believe there’s a cost of admission to receive the full return of ownership in enduring companies.
- Every year, we expect there to be on average a 15% correction from peak to trough.
- Approximately every 5 years, we expect there to be a 30% or greater correction from peak to trough.
What we CANNOT do
Attempt to time the market; Buying, selling, and holding our investments based on what we think are the most optimal opportunities—Can’t do it.
Human nature is that of a failed investor, and our emotions and biases are our own worst financial enemies.
We’re proud to say that Know My Plan holds no secret advantage to think that we are any different than anyone else when it comes to “timing” the market. We’re okay with that.
Although what we do have is historical patience and long-term confidence and we strongly believe in our quest to continue acquire shares of well-capitalized enduring companies over time, during good times and bad, while maintaining our plan contributions during periods of uncertainty.
What we CAN do
New market highs provide a time for us to reflect upon how we might need to utilize and access our accrued wealth:
- Do I have any major purchases coming up in the next 2-3 years?
- Do I have an adequate emergency fund?
- Do I have any money in companies that I have a reasonable belief I will need to access within the next 5 years?
Most importantly, when the BAD news comes and companies find themselves valued at a “discount,” this is an ideal strategic opportunity to acquire more shares at a lower price:
- Reinvest dividends
- Continue to invest monthly
- Increase your monthly contributions if possible.
Regardless of how deep or painful the next round of bad news is; we believe great companies will eventually return to their historical trend line returns.
While the media dwells on the apocalypse de jour and cataclysmic end of the world (“this time it’s different”), the companies we own will strive to:
- Steward capital towards the most profitable endeavors for their respective companies.
- Stop allocating capital to unprofitable money pits.
- Innovate.
- Solve today’s biggest challenges and obstacles.
In closing, what is all this talk about historical trendline return?
The historical return of the S&P 500 Index® has been 10-11% since 1926 with dividends reinvested. For compliance purposes, it is important to note that you cannot invest directly in the S&P 500 Index® but you can invest in an Exchange Traded Fund or Mutual Fund that mimics the index’s performance. I cite the S&P 500 Index®, because it is a good proxy for a well-capitalized diversified portfolio.
Your financial plan is always working for you (in all market cycles) as it was built with an understanding of historical volatility in mind. Your plan was also built with safety valves that can be relied on during market unrest:
- Emergency Fund
- Home Equity Line of Credit
- Short-Term Investment Grade Fixed Income Securities
Charlie Munger was a great friend of Warren Buffet and former Vice Chairman of Berkshire Hathaway, and a quote of his that I often share with folks: “The first rule of compounding: Never interrupt it unnecessarily.”
If you or someone you’re close to is a high-achieving professional that could use help aligning their finances and establishing a financial plan, please reach out to us, we’re accepting new clients and eager to help.
Cheers, Nic
Disclosures:
Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.
The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk
How Well Do You Remember?
The Tech Bubble, Y2K, 9/11, The Great Recession, Lehman Brothers bankruptcy, BP Oil Spill, S&P downgrades U.S. Debt, Ebola, Brexit, Yield Curve Inversion, COVID, Inflation hits 40-year high, Silicon Valley Bank failure, etc…
We vividly remember all of them…
Yet, the markets continue to climb and reach new all-time highs and selling your ownership of a low-cost diversified portfolio of enduring companies (shares) would’ve been a very costly mistake.
However, quite ironically, if you listen, watch, or read the news, they’ve been quick point out all the reasons that you should sell.
The BAD News
Pain is coming, it’s inevitable.
Call it whatever you like: A recession, correction, crash, blip, depression, etc…
We have no idea know why (e.g.: geopolitical event?) or when this will happen, but based on history, we know it’s coming.
The GOOD News
Your financial plan already accounts for whatever’s to come.
In fact, as a Know My Plan client, we’ve discussed it, and you know it’s baked into what we do.
We believe there’s a cost of admission to receive the full return of ownership in enduring companies.
- Every year, we expect there to be on average a 15% correction from peak to trough.
- Approximately every 5 years, we expect there to be a 30% or greater correction from peak to trough.
What we CANNOT do
Attempt to time the market; Buying, selling, and holding our investments based on what we think are the most optimal opportunities—Can’t do it.
Human nature is that of a failed investor, and our emotions and biases are our own worst financial enemies.
We’re proud to say that Know My Plan holds no secret advantage to think that we are any different than anyone else when it comes to “timing” the market. We’re okay with that.
Although what we do have is historical patience and long-term confidence and we strongly believe in our quest to continue acquire shares of well-capitalized enduring companies over time, during good times and bad, while maintaining our plan contributions during periods of uncertainty.
What we CAN do
New market highs provide a time for us to reflect upon how we might need to utilize and access our accrued wealth:
- Do I have any major purchases coming up in the next 2-3 years?
- Do I have an adequate emergency fund?
- Do I have any money in companies that I have a reasonable belief I will need to access within the next 5 years?
Most importantly, when the BAD news comes and companies find themselves valued at a “discount,” this is an ideal strategic opportunity to acquire more shares at a lower price:
- Reinvest dividends
- Continue to invest monthly
- Increase your monthly contributions if possible.
Regardless of how deep or painful the next round of bad news is; we believe great companies will eventually return to their historical trend line returns.
While the media dwells on the apocalypse de jour and cataclysmic end of the world (“this time it’s different”), the companies we own will strive to:
- Steward capital towards the most profitable endeavors for their respective companies.
- Stop allocating capital to unprofitable money pits.
- Innovate.
- Solve today’s biggest challenges and obstacles.
In closing, what is all this talk about historical trendline return?
The historical return of the S&P 500 Index® has been 10-11% since 1926 with dividends reinvested. For compliance purposes, it is important to note that you cannot invest directly in the S&P 500 Index® but you can invest in an Exchange Traded Fund or Mutual Fund that mimics the index’s performance. I cite the S&P 500 Index®, because it is a good proxy for a well-capitalized diversified portfolio.
Your financial plan is always working for you (in all market cycles) as it was built with an understanding of historical volatility in mind. Your plan was also built with safety valves that can be relied on during market unrest:
- Emergency Fund
- Home Equity Line of Credit
- Short-Term Investment Grade Fixed Income Securities
Charlie Munger was a great friend of Warren Buffet and former Vice Chairman of Berkshire Hathaway, and a quote of his that I often share with folks: “The first rule of compounding: Never interrupt it unnecessarily.”
If you or someone you’re close to is a high-achieving professional that could use help aligning their finances and establishing a financial plan, please reach out to us, we’re accepting new clients and eager to help.
Cheers, Nic
Disclosures:
Dividend payments are not guaranteed and may be reduced or eliminated at any time by the company.
The S&P 500 is a stock market index tracking the stock performance of 500 of the largest companies listed on stock exchanges in the United States. Indexes are unmanaged and cannot be invested in directly.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk
