This year, I want to assist clients with a TRANSFORMATIONAL INVESTING AND FINANCIAL PLANNING EXPERIENCE to answer the one question they all want answered, even though they all ask it differently.
CAN I DO WHAT I WANT, WHEN I WANT, WITH MY MONEY?
The S&P500 was up 31.5% in 2019.
Josh Brown offers this...
Let’s take a hypothetical portfolio of 60% S&P 500 and 40% Barclays Aggregate Bond Index, on a total return basis. Assuming a single rebalance at the mid-point of the year, you’re up 20.1% for 2019.
Let’s say you had international exposure – this hypothetical portfolio consists of 30% S&P 500, 20% MSCI EAFE (foreign developed market stocks), 10% Emerging Markets stocks and then 40% in the Barclays Aggregate Bond Index. With this more globally diversified mix, you did 16.5%, assuming that same single rebalance at the end of June. Now of course, these are indexes, so if you’d expressed these allocation selections using the representative ETFs, you’d have had whatever trading costs were involved plus minor basis point fees (now trending toward zero in both cases).
2019 offered a lot of drama and overthinking of investing. The Trade War? Inverted Yield Curve? A presidential tweet? Impeachment? Take your pick. 2020 will likely offer more of the same. Investing is necessarily uncertain and unpredictable and you can’t have the upside without the downside. This from Ben Carlson…
$10k invested in the S&P 500 in Jan 2000 would be worth $29,181 by the end of Aug 2019. $10k invested in the S&P 500 in Jan 2010 would be worth $32,100 by the end of Aug 2019
And this from Michael Batnick...
There have been 47 double-digit sell-offs in the S&P 500 since 1928. 31 of them occurred outside of a recession so 66% of the time stocks fell for a reason that's wasn't related to an economic slowdown
This illustrates the un-necessary drama in the investing world. Investing is about saving for the future when you can’t/don’t want to work, have major expenses like homes, health care, and cars, and to keep up with inflation - not for drama and not for winning a game. Investing isn’t a game because who’s game is it and who’s rules are they?
More from Josh Brown…
There are those who tell you they can mitigate, or even eliminate, these risks, but even if they can, there is a price to be paid – sometimes a price higher than what the risks you were trying to avoid in the first place would have extracted from you! “More people have lost money waiting for corrections and anticipating corrections than in the actual corrections.” – Peter Lynch
The S&P 500 gained almost 30% on a total return basis for 2019. Those who embraced the uncertainty got paid. Those who fled uncertainty can now claim, with utter certainty, that they fell far behind their fellow investors once again. Their sole consolation – at least the macro newsletters were really interesting this year.
Let me offer you a secret weapon to market uncertainty. Double Digit returns and negative returns are far more likely than single digit returns - that is how you should posture yourself, at least mentally. You are empowered to master the situation and I am here to help you. If the market goes up more, I want you to participate. If the market goes down, I want to immunize any portfolio to strengthen it in the future and buy in at a lower price. In short, it becomes antifragile AND an emotionally therapeutic process to contribute more to my portfolio on a regular basis.
Rather than wager on the market, I choose to bet on myself and greater certainty of doing well in the long run. Don’t count on unpredictable returns - count on yourself and your ability to save more. It is a more constructive path and it is better for your mental state of wealth.
Here is my ask...commit to raising your contributions with me.
It is easier and more inspiring to chase increased savings goals than decreased spending goals because let’s face it - life happens and if you miss a spending target, you tend to quit chasing it. Conversely, if for some reason you have to put increased savings on hold and suspend automatic contributions, you still have time to get back on track.
How I Can Help You
I have already talked about how investing more immunizes your portfolio and allows you to control what you can control and bet on yourself. Let me demonstrate two things you probably already know about investing, but may not have the tangible evidence.
1/ How investing accelerates your goal achievement. This table shows the number of months it takes for your portfolio to grow at various contribution rates, given a constant contribution amount and return rate. 500K to 1MM is just over 10 years when you contribute $1000 a month. This number goes down by 2 years if you increase your contributions to $2000 and over three years when you go to $3000 a month. This is a great reason to do more than just “max the match” of your 401k.
With a 5% Rate of return and contributing $1000/month, it would take you nearly six years to get from $500,000 to $750,000. At $3000/month, it would take 4.5 years.
2/ How investing enhances your results. Not only does investing expedite your portfolio growth and shave years off your working career. It also can enhance your returns in certain markets. Look at the difference in the growth and rate of return on a $100,000 portfolio where someone does and doesn’t contribute $500 per month.
Originally provided by Ned Davis Research in 2017
Being a money master is a little bit of work, but it is fun to track and the results, much like the gym or dieting become more evident the longer you go. In my next post, I will discuss the alternative of being a money master.