There are two things we’ll cover in this article, and we think their answers will surprise you;
- With the stock market up dramatically, what is the underlying nature of ‘stock market highs’?
- Are investments the most important thing?
On the initial topic, what is unknown by most is that since 1926, the Dow Jones Industrial Average has reached ‘an all-time high’ every 18 days. [i]It is true that we saw the US market up roughly 16% in 2012 and 32% in 2013. Thus, those investors who at the end of 2012 said ‘We better sit this out on the side line as the inevitable fall is pending’ are probably feeling that aching sense of regret. If the stock market is up 3 out of every 4 years (it’s average), then it is mathematically impossible not to experience new highs. Please intellectually process that reality. As Forrest Gump would quip; “That’s all I’m going to say about that.”
Secondly, on investments. Our natural instincts and largely human nature of competition is to always seek ‘the best’. When it comes to investing it would be no different. To be clear, we only came into this industry simply to get access to what we had researched to be the best investments for both my family and my clients. However, the truth is there was an epiphany; we came to appreciate that though seeking ‘best’ investments are the common reason people use an ‘investment advisor’, the truth is they are not the most important. Having a concrete and comprehensive financial plan is MORE important.
Anticipating ‘why’ would be the natural question, let me share with you our experience. A financial plan, done correctly, will tell you not only what the future looks like for your spending levels, but it instructs / guides the levels of equities you should have in your portfolio to achieve the panoply goals laid out; how much risk you should take. The key is finding that balance between how much risk you should have to give you the returns you need, principally reflected in how much stocks / equities should be owned, without getting loaded up with too much risk and exposing you to sizeable downturns that you never need to see.
Not in contrast to the above, you don’t want to be greedy when markets are up. The overwhelming history of individual investors is for money to pour into the markets when returns have been good, and to abandon those same markets with panic should things drop. We could tell you stories that would literally bring tears to your eyes in this regard. The result, at present, is that we ARE selling US equities out of many portfolios, and certainly not because they have not performed (they have kicked butt frankly) but because there’s simply no use in being greedy. Your performance is not only what we review when together, but the adequacy of your investments to meet your plan so that the one key goal is reached; your money does not run out before you leave this earth.
In a concluding comment, let us report that one of our clients recently introduced us to the brightest Estate / CPA Tax accountants he knew. She was very thoughtful in her learning about Wellspring and asked about investments and my philosophy on them, but what most significantly impressed her was that we take the time we do to create solid financial plans…and keep them updated vs. ‘putting them on the shelf as most advisors do’. We recently spent over 11 hours doing a plan for a new client in order to get to a high confidence financial plan for this successful entrepreneur and his wife. It was an effort gladly untaken in order to understand, analyze, test and recommend a financial plan that gave guidance to the future, while wisely incorporating the uncertainties so we aren’t thrown off track when “life happens”. That’s a lot of time, but given the dependence on it, well worth it. The editorial (attached) gives testimony to the importance of that objective.
We hope you learn from these letters. The goal is not only to give you the best we can give, but as the Marines used to say “To make you the best you can be”. That is a best worth striving for.
[i] “Inside Personal Finance’ (Ric Edelman, April 2014)
