Five years is a very long time. Ten years is an eternity. 18 years is almost unthinkable. That seems to be the approach to investing these days. This bear market, begun by a pandemic and perpetuated by inflation, has lasted less than a year and a half, and yet many treat it like an eternity. It is not!
Unless you are very, very old and expect to expire in the next few years, you should be thinking in the long-term. Making decisions on a short-term basis can lead to significant underperformance of your portfolio and increase the probability that you will not have enough money to last your entire lifetime.
Google “evicting a senior citizen from assisted living” and you will find sample letters and procedures to legally evict the elderly from assisted living or nursing homes. . It is a growing trend that people in assisted living are being kicked out because they have run out of money. It is tragic to see someone 90+ years of age booted out because they ran out of funds. At that age, returning to the workforce isn’t a practical solution.
Having enough money to maintain your quality of life to the end is undoubtedly an expectation most readers of this letter have. So why are so many focused solely on the short-term? Building wealth is a long-term process; it will take longer than three or five or even ten years. It is a lifelong process. Along the way there are going to be upsets, but it is important to understand that and to ride through them.
We live in uncertain times. What we wish for our clients is to have a sufficient excess of net worth to meet these uncertainties.
Things that have never happened before happen all the time. Who in 2019 was expecting a disease that would spread worldwide, kill millions of people, and shut down most businesses for almost a year?
You may be in good health now and anticipate that will continue, but there are just some things for which we cannot plan 40% of people will be diagnosed with cancer,1 and 12% of those who do will wipe out their savings in two years or less.2
You may count on your home or real estate to hold their value. However, the old saying that real estate always goes up was strongly disproved in 2008-09, when real estate values cratered.
You may be listening to the gurus who expect inflation to subside and the Federal Reserve to lower rates by the end of 2023. We have been warning since 2016 that inflation was coming. Inflation destroys purchasing power. In the inflation times of 1960s-1970s, the purchasing power of the dollar dropped by 70%. What that meant was, on average, what cost $1 to buy in 1960 cost $3 to buy in 1980. In 1960, a first-class stamp was 4 cents, a Coke was 10 cents, a dozen eggs 57 cents, and a gallon of milk was 49 cents. By 1980 the first-class stamp was 15 cents, a Coke was 35 cents, a dozen eggs were 91 cents, and a gallon of milk was $2.16. Those portfolios sitting in cash had lost 70%.
There is reason to believe that inflation will continue for a number of years at 4-5%. The lesson from the 1960s-1970s was that a geopolitical event can send inflation soaring. In the 1970s it was OPEC that limited oil supply. Today it could be any number of geopolitical events that could send inflation above 10% for several years.
During inflation, no asset class is safe. It is being in the right investments at the right time which will allow investors to succeed. It is understanding that building a sufficient wealth is a long-term proposition – long-term meaning 10, 20, 30 years, or more. These uncertain times also mean there is going to be greater volatility.
Our goal for our clients is to create the wealth that will allow them to continue or even improve their quality of life for as long as they live.
How about you?
1. “Cancer Statistics.” National Cancer Institute, September 25, 2020. https://www.cancer.gov/about-cancer/understanding/statistics#:~:text=Approximately%2039.5%25%20of%20men%20and,will%20die%20of%20the%20disease.
2. Gilligan AM, Alberts DS, Roe DJ, Skrepnek GH. Death or Debt? National Estimates of Financial Toxicity in Persons with Newly-Diagnosed Cancer. Am J Med. 2018 Oct;131(10):1187-1199.e5. doi: 10.1016/j.amjmed.2018.05.020. Epub 2018 Jun 13. PMID: 29906429.