January 06, 2021
A Single Best Practice for Year End 2020 and Beyond
If you’re like me, 2020 has left you feeling like the fabled Sisyphus; forever pushing a boulder up a steep hill? Thankfully, with multiple COVID-19 vaccines in the works, there’s hope the load will lighten in the new year, that is fast approaching. Further down this newsletter, we highlight some year-end financial to-dos and some 2021 considerations. I thought it might be important to highlight while we prepare for a fresh start, one financial best practice for year-end 2020 and beyond, which does not require any heavy lifting.
Live a little more. Really, it’s always a best practice to ensure your financial priorities are driven by your life’s greatest goals – not the other way around. Perhaps our greatest purpose as your Investment Advisor is to assist you and your family in achieving a satisfying work/retirement-life balance, come what may. What does this balance look like for you? In his new book, “The Coffeehouse Investor’s Ground Rules,” Bill Schultheis offers his take:
“When you … have everything you need materially, how do you honor that part of your DNA that will forever yearn for more? It seems to me that the challenge is to turn this pursuit of ‘more’ away from material consumption and toward a ‘more’ that fosters more family, more community, more connections, more art, more creativity, more beauty.”
What more can we say about how to make best use of your time and money, this and every year? As always, we’re here to help you implement any best practices. In the meantime, we wish you and yours a happy and healthy 2021.
It Is not the Known That Get You, It is the Unknowns That Get You
In our work we are always going to be dealing with unknowns. Unknowns break down into two categories: known unknowns and unknown unknows. And it isn’t the known unknowns that get you.
The mother of all known unknowns was Y2K. You may remember that, as the millennium approached, a problem in the coding of the world’s computer systems threatened to render them inoperable at midnight on December 31st, 1999. There are countless stories of people seeking desperately to convert their savings and investments into physical cash and gold, for fear that the records of them would disappear. After a year or more of international alarm, feverish preparations, and programming corrections – and the expenditure of some $300 Billion world-wide – at midnight on New Year’s Eve, the computers rolled over without incident. This particular unknown had proven.... just too well known.
In 2020, investors have been faced with both a known unknown – the US presidential election - and an unknown unknown – the Covid-19 pandemic. Once again, we rediscovered that it isn’t the known unknown that gets you.
Much of our time leading up to the US Presidential elections was talking to clients and convincing them NOT to get out of the equity market prior to the election as they feared that the success of one candidate or the other would plunge the world into a new level of chaos. In the next breath, many of these same people said they planned to get back into the market after the election – in effect fleeing their core long-term investments to avoid volatility they themselves thought would be of short duration.
For investors, though, the US election served up a hearty helping of same old, same old. To wit: many investors (both professional and amateur) got out of the market around the trough of its perfectly predictable pre-election sinking spell—S&P 3,270 on Friday, October 30— and they very quickly got thoroughly skunked. Two Fridays later, on November 13, the Index closed at a new all-time high: 3,585, up about 10%. And another known unknown bites the dust.
Meanwhile, the pandemic rolls on, gaining momentum as the weather gets colder and people move indoors. Societally, it was and remains the great unknown unknown of 2020, and on into next year. Yet at the heart of the matter, there is a wonderfully known unknown: the vaccine. (Indeed, vaccines.)
We do not know when an effective vaccine will be ready. We do not know how long after that it will take to reach meaningful swaths of the population, starting with its most endangered, the elderly infirm. Until it does, we do not know to what extent affected cities and provinces will lock down, nor with what economic consequences.
Thus, as they did in the run-up to the election—indeed, as they did when the pandemic first struck with full force and the S&P 500 fell 34% in 33 days—investors have a choice today. Fearing another lockdown-driven economic downturn, they can throw off their long-term plans and portfolios, and retreat to the sidelines “until the dust settles.” We have seen—not once but twice in this phenomenally instructive year—how dreadfully (and quickly!) this “strategy” fails.
The other choice—the one that has served investors exceptionally well (and quickly!) throughout a most stressful year—was and is to just ride it out. This is precisely my counsel to this course of action to long-term, goal-focused, planning-driven investors.
Follow the Science for the science tells us that, even as the virus may currently be winning the battle, the vaccine must ultimately win the war. And you will not want to be sitting in cash when it does.