One of the only benefits of getting older is the feeling that you’ve been here before. While younger people are running to buy companies that have little or no earnings or others are panicking at the sight of the war in Ukraine, I can’t help but remain calm because I think I’ve seen the movie already. Here are some observations that puzzle my 61 year old brain….
I’m constantly amused that people I meet are currently willing to pay ridiculous prices for houses not fearing that they will ever drop in value but when current stock prices are dropping they feel it’s the end of the world. How does buying high for houses but selling low for stocks make sense?
When interest rates were falling for the past 40 years to a point where 30 year mortgages were a ridiculously low 2.75% people believed that rates would stay that low forever despite a strong economy. Now talk of higher interest rates and mortgages at 4% seem to have people and markets rattled.
I was born in an era of bomb shelters and the Cuban Missile Crisis and have witnessed the Vietnam war, the conflict in Northern Ireland, the Gulf War, the Bosnian war, the Iraq war, the war in Afghanistan, the Russian takeover of Crimea, the war in Syria and many too many others to list. Wars over territory, ports, natural resources and religion have taken place since the beginning of time and unfortunately it is doubtful the world will ever see true, lasting peace. Meanwhile from a financial perspective, markets seem to eventually recover even as in the moment like now things look grim. Ironically, wars actually are good for earnings of many companies as seen today with oil and defense contractors.
Then there’s the issue of inflation. Since 1960, prices have gone up approximately 9 fold. The longest period of inflation occurred until 1982 and has been relatively low until last year. Forty years of innovation helped drive the price of products and services down especially the likes of airline tickets, hotels and anything that could be searched online. Two years of Covid related production problems and pandemic payment induced spending and analysts are now promoting the fear that inflation is here to stay?
Here's what my 61 year old brain tells me about the current situation:
The S & P 500 was 58 on December 31st of my birth year. Today, March 4th, 2022 it’s 4314 or 74 times higher. That beats inflation number of 9 times by a mile.
For those counting on income in retirement, dividends on the S & P 500 are higher by 30 times.
So, as I see it, it’s painful that even though there is a 75% chance that the market goes up in any one year, this year it’s not. It’s painful to see the gains made last year, evaporate. It’s painful to see politicians make bad decisions or the Federal Reserve be too cautious. It’s even more painful to see people watch their investment values too closely and forget today’s value doesn’t really matter. It’s most painful to see people sell good stocks or funds without understanding what they really own or how the value of a company or companies in a fund is the future stream of earnings it will produce in the future, not today.
While the current situation in Ukraine is tragic and scary, I have to remain optimistic that like most conflicts it will eventually end and a new one will start soon after. Unfortunately, I’ve seen this one before.
If you or someone you know is concerned and wants a review to stress test their finances before making a hasty decision, feel free to call us.
Many thanks to Nick Murray for providing some of the data points regarding the market index and inflation.
Jay Gershman is the Owner and Founder of Retirement Visions LLC, a West Hartford-based financial planning firm that focuses on comprehensive life planning and financial management. For more information, visit www.allset2retire.com. Information and advice are for guidance only and opinions expressed belong solely to the author. Securities offered through Securities America, Inc. Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Retirement Visions LLC and Securities America are separate entities.