United States Senator Daniel Patrick Moynahan once said, “We are entitled to our own opinions, but not to our own facts.” Someone whom I cannot recall said, “It’s easy to lie with statistics. It’s difficult to tell the truth without them.”
Financial professionals, like most folks, can have great belief in what they do. The “annuity guy” can talk all day about how wonderful annuities are. The stock fund manager will regale you endlessly with how well her clients have done over the years by investing in equities. Ditto insurance and real estate people. The descriptions and superlatives might vary but the formulation remains the same. Their game, whatever it is, just happens to be the best game in town. Though I think they generally mean well, I am not convinced.
The S&P 500, aka the stock market, has averaged approximately 7% per year for the last 20 years. If, however, I measured its 20-year performance prior to the recent drop, the average would be over 9%.
In the decade from June 2000 to June 2010 the S&P plummeted from about 1500 to 1050. Meaning that it lost 30% of its value over that ten-year span. It has been referred to as “the lost decade.”
From June 2010 to June 2020, the S&P 500 advanced approximately 250% to 3500. A sizzling return of close to 13% per annum.
People advocating for stock market-based investments will naturally highlight the latter decade, while those extoling the benefits of alternatives to equity investing will be quick to remind you of the former. Who is right? To know that we must be able to answer some questions.
When will you retire? When will you die? When will you or someone you love suffer a serious illness or injury? When will you help a loved one start a business? When will you buy your vacation home? When will you remodel your home, go on a dream vacation, or begin a new venture? And, most relevant to this discussion, what will the market be doing when any of these or dozens of other scenarios play out in our lives? If the market is down and we need to take out a significant amount of money, our assets might never fully recover.
It is for this reason that the conventional wisdom has always stated that as we age, we should move a larger percentage of our assets into safer investments, like bonds, annuities, and permanent insurance. In other words, it is important to diversify within and among asset classes.
As we age, our focus should shift toward protecting what we have. This way, we can work to assure ourselves the highest likelihood of avoiding financial catastrophe.
The advent of the Internet ushered in what has been termed the “Information Age.” And while it is true that we have greater access to information than ever before, we are also bombarded by marketing patter, propaganda, hearsay and out right lies, more than ever before. Consequently, the “Information Age” has as its flipside, the “Disinformation Age.” This phenomenon has led us, as a society, to a period of great polarization.
Some of this polarization seems to have leeched into the way people working to build wealth view financial products and the strategies of how to best use them. In the realms of life insurance and stock investing, for example, there is the “buy term and invest the difference” camp and opposing them are the vocal adherents to what might be labeled as the “life insurance as religion” crowd.
And, as in previous generations, there are the youngsters who think they know everything their seniors do not.
Twenty years ago, younger investors rode the dot.com stock boom to great profits. The subsequent bust left many of them with stunned looks and stunted portfolios.
More recently, newer investors became wealthy – if perhaps fleetingly - with crypto and NFTs (https://www.unifiedplanninggroup.com//blog/a-small-fortune.) The younger set made lots of money initially. As their balances grew, so did their confidence.
Not surprisingly, the tried-and-true methods of getting rich over time seemed dated and passe. When your 24-year-old college buddy goes from living in a frat house to a penthouse over a couple years, getting a 7% return on your investment portfolio just does not seem appealing. This year, however, crypto has gotten smashed and many have found out the hard way what their parents had been warning them of all along.
What will the next big thing be? We have no way of knowing except we can be sure it will be something.
There is, it seems to me, some deeply rooted desire in humans to reduce life to binaries. Soup or salad. Black or white. Night or day. Coffee or tea. Stocks or bonds. Insurance or annuities. You get the idea.
I think we do it because it makes things simpler. Life is challenging and we all have a limited capability of processing things. The more things we can put on autopilot, the more attention we can spare for the things we want and need to do.
Regarding our financial health, we must remain receptive to new information and avoid the trap of seeking only affirmation. It feels good to be told what we already believe is right or even noble. But the way a belief makes us feel about ourselves could be a poor predictor of the value it will produce in our lives.
We all must choose. Do we want information or affirmation? Do we want solutions or absolutions? Do we want to be told what we want to hear, or what we need to know? And remember, not choosing is, itself, a choice.
I believe, we want the information required to arrive at effective financial solutions. I believe we are willing to seek out information on what we need to do and, most importantly, we want to do it. The ethos of sober judgment and rational decision making, with a dash of financial discipline, will help lead us towards achieving a wonderful future.
If you would like assistance in seeking solutions and implementing a plan based on them, consider working with a financial planner who cares about your success.
Scott R. McGimpsey October 28th, 2022
This material was prepared by Scott McGimpsey and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Neither Cetera Advisor Networks LLC nor Scott McGimpsey is engaged in rendering legal, accounting, or other professionally services. If such assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any federal, state, or municipal tax penalty. Moreover, a diversified portfolio does not assure a profit or assure protection against loss in a declining market. UNIFIED PLANNING GROUP is an independent firm.