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Lessons From the Past: Introduction Thumbnail

Lessons From the Past: Introduction

When markets are upset as they are today, I am reminded of the sage advice from our founder about keeping a long-term perspective and focusing on matters under our control. David penned an article in early 2016 when the market was going through a tumultuous period, and his words are particularly relevant today. Here is an excerpt from that piece:

We have experienced this many times in the past and will experience such volatility many times in the future.   A comforting thought, I know.

The good news is that we have learned many things from actually living through such upheavals.

  • Investments by definition are volatile in nature and always unpredictable 
  • Every period of investment history is different than any other, despite the claims otherwise
  • Human emotion can be a roadblock in assessing investments or making investment decisions 
  • During times of market stress the focus is always on the damage, not the potential longer-term opportunities 
  • Taking a longer term investment view is imperative to reaching one's financial goals

This all sounds fine but from a personal perspective we are talking about real money here, money that we need now or in the future to meet some goal that we have.  It’s naturally uncomfortable to watch such volatility without some perspective regarding the ability of our own personal investment portfolios to meet our future needs.

We have entered a perilous time for investors. Not because of any further drawdowns that markets may suffer in the short-term but because of the bad decisions investors make in the face of potential short-term losses. Stories of investors "going to cash" is a feature of every downturn, and we are indeed hearing such accounts now. And when we hear those anecdotes, we cannot help but shake our heads as that decision is, in most cases, the worst one an investor can make. But since we are talking about real money amidst a highly challenging environment, we would be remised to leave it at "hang in there."

As we expressed in recent notes, money printing arguably allowed us to evade a depression when we took much of the economy offline during the pandemic. Since economics offers no free lunches, high inflation is the tradeoff we collectively accepted and now suffer.

High inflation erodes asset prices. And the longer it takes for inflation to normalize, the more severe the ongoing market rout is likely to be. The moment inflation will break is unknowable in advance, but we will measure that horizon in months or quarters, not days or weeks. Yes, the near-term outlook may be unpleasant, but that's always the case amidst a market correction.

The good news is that past episodes like this one are not what derail an otherwise successful financial plan. In fact, these are the occasions in which long-term opportunities typically emerge, as we have said many times before. But preparing portfolios for this moment happens as part of a process and well before downturn risks emerge.

Behind each lesson David listed above is a philosophy and a process for managing portfolios in any environment. We think it's important to remind our readers what's happening "under the hood." Therefore, we will devote a forthcoming series of notes to describe how each lesson applies to today's situation and shapes our current investment decisions. We have a lot to unpack, and we are eager to share "Lesson 1" soon!

As always, we are honored to serve you and welcome discussing any investment questions on your mind.

Advisory services are offered through Lifeway Financial Corporation, a SEC Investment Advisor.  All content is for information purposes only and should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services to any residents where it is not appropriately registered, excluded or exempted from registration or where otherwise legally permitted. It is also not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Purchases are subject to suitability. This requires a review of an investor’s investment goals, preferences, and constraints. Investing always involves risk and possible loss of capital.