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  • Writer's pictureRyan B.

Investing is Hard

The Price of Successful Investing

The Holidays are a time for many things: making memories with family, expressing daily gratitude, and perhaps reflecting on the year gone past. While contemplating various aspects of my life, one crucial element that captures my reflection, aside from my family, is the markets. With December upon us, it’s fascinating to ponder the year the markets have had versus what economists had expected. Let’s not forget that economists were predicting “100% chance of recession” in 2023, (yes, that was an actual Bloomberg headline from 2022). Yet, the S&P 500 is up nearly 20% for the year and Q3 GDP was over 5%! How can investors be successful when it feels like everything is stacked against them?

It got me thinking a lot about the last five years and all that investors have dealt with.

· 2018 Bear Market which ended on Christmas Eve (brief, but a 20% decline)

· A once-in-a-lifetime global pandemic in 2020

· A drop in the S&P 500 of 35% over the course of one month

· Three separate bear markets (Oct-Dec 2018; Feb-Mar 2020; 2022)

· The worst year for bonds EVER (2022)

· The 2nd worst year for a diversified 60/40 portfolio since the 1970’s (2022)

Yet, with everything stacked against investors, a traditional 60/40 portfolio returned approximately 6.5%* annually over the last five years. This is closely in-line with the historical average for a 60/40 portfolio. Reflecting further on the past five years, had there ever been a moment where you as an investor thought “now is a great time to be invested!”? Maybe some of you will say yes, but most would say no. Headlines and current events typically cause us to come up with excuses to not be invested. Deleted sentence- redundant.

This negative sentiment towards investing in the markets continued into 2023. The only catalyst driving the recent rise in stocks over the past 4-5 weeks has been slowing inflation, due to signs of a slightly slowing economy. Not exactly the type of news that gets people jumping for joy.

The lack of enthusiasm we've been seeing towards investing in the stock market reminded me of an article I wrote back in 2018. It discussed this notion of “easy money”. Essentially, the period of “easy money” commenced after the global financial crisis in 2009. Moving forward, it would become more challenging to make money due to a shifting economic landscape. However, I argued against the notion of “easy money”. There is no such thing! In just about every year from 2009 to 2018 there were MAJOR headlines, world events, and market uncertainty keeping people out of the market. We spoke with investors every day, rarely did someone want to be invested, yet the idea of easy money portrayed a rosier picture of the past than what we all lived through.

Investing is hard. There is always a reason to stay “safe,” hold cash, and stay out of the markets entirely. I’m currently reading Morgan Housel’s latest book Same as Ever and there’s a great chapter titled “It’s Supposed to be Hard.” I loved the subheading to this chapter, which read:

“Everything worth pursuing comes with a little pain. The trick is not minding that it hurts.”

The last five years have been painful in many ways for investors, even more so in many cases on a personal level. For investors, long-term success comes with pain. I always call it the price of higher returns. When deciding if a 80/20 portfolio or a 60/40 portfolio is right for you, are you willing to endure the “price” of higher volatility in the short term for the anticipated higher returns over the long term? As my high school econ teacher used to say, there’s no such thing as a free lunch.

At the start of this year, just about everyone from economists to wall street analysts were saying to stay away. Yet here we are, the S&P 500 up 20%, bonds are up, yields are WAY UP, and many people who were invested are happy they chose to do so. The point is there will always be a reason to be cautious, always a headline to keep you away, always doubt about the markets going up. Rarely will you get the headline, data point or positive geopolitical news that gets you to say, “let’s get invested.”

So, what can we do to be successful? Have a plan and keep your time horizons in check. Stocks are way riskier on a day-to-day basis than they are on a year-over-year basis, or even less risky on a decade over decade basis. Most of us have long runways, so let’s protect what we need for the short-term, and look to benefit from the long-term. There’s no better way to do this than working with a team of advisors to hold you accountable to “staying the course” and having a plan that you can be comfortable with.

*60/40 portfolio returns based on a combination of the S&P 500, MSCI All-world index and the Barclays U.S. Aggregate Bond Index

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