On a personal level, I am a planner. On a professional level, I am a Certified Financial Planner. I prepare (and plan) for what I believe is coming, monitor the situation as a participant, and have a contingency plan to fall back upon if my primary objective(s) cannot be accomplished. To some, I over think, analyze, and stress about the small details too much. Unapologetically, that’s who I am. And I can’t change how I’m wired–just ask my wife and kids!
On the flip side, there are those who bump through life making few, if any, calculated decisions. They enjoy stress-free moments that take them on life’s journeys, wherever that may be. If the wind blows their nice cabana over, that’s life. If the plumbing gets clogged from years of grease, that’s life. If they end up with not enough money to live on throughout retirement, that, unfortunately, is life as well.
To find common ground between these two types of decision making methods, a lyric that is almost always on the tip of my tongue, precisely sums it up: “If you choose not to decide, you still have made a choice.” Geddy Lee, lead singer from the epic 4-decade strong Canadian rock-band known as Rush, belts this line out in a song called Freewill. I believe Geddy stole that line from the French philosopher Rene Descartes, who is known more famously for his statement of, “I think, therefore, I am.”
I find the line from this song fascinating because it is absolutely true. Complacency, laziness, ignorance, or even silence, are all examples of making a choice–even though no action is taken. This indecision also resonates with how some people’s decision-making skills or their approach to addressing the ‘not so fun times’ are decided by lack of a plan. This could be due to the anticipated or actual complexity of the task/problem at hand, and thought of being overwhelmed while addressing it.
I was talking to a friend this past week about the markets, inflation, our political environment, Russia, Covid, and all the other events that have brought on recent negative sentiment. She expressed her concern that the world was headed towards a cliff, and that the mere thought of planning for 10, 20, or 30 years out was pointless. In other words, she decided that not making a plan was as good as making one based on her views. Nobody was going to convince her otherwise and her decision of doing nothing was already made.
If we go back to the great recession of 2007 – 2009, the psychological damage that market drop inflicted on some investors was never shaken off. It was brutal, no doubt! There were people I knew who were sitting in cash 7-years later believing that an even bigger crash was going to happen; and they didn’t want to see their hard-earned money evaporate. Not only were they wrong, but they had sabotaged their own plan to grow their wealth at a pace to provide themselves a decent retirement. Again, that decision and plan to ‘not do anything’ was made, and the results were detrimental to their wealth.
The current events of today present a new chapter for many younger investors. The last time inflation was a top-news issue was 1979 -1982. The last time we were expecting and experiencing rising interest rates (a trend, not short-term) was 1982. Sure, we’ve had some runs of increases here and there over the past 40-years, but we are starting at a current Federal Funds Rate of 0% – 0.25%. To put this number into perspective, the Federal Funds interest rate in 1981 hit 20% while the inflation rate in 1979 (Federal Reserve Bank of St. Louis) was 11%. By 1982, the unemployment rate was 11 percent. Here’s a great link to that historical period: Recession of 1981 – 1982.
So how did the economy do over the next decade after this historical time of interest rate and inflation craziness? The S&P 500 index (which you can’t actually invest directly in but there are shadow index investments) returned 9.3% on average for each year from 1980 to 1990. I found a informative site that illustrates any combination of return data you are looking for….check it out: Historical returns calculator
My point is that experienced investors and our economy has weathered wars, assassinations, oil embargos, foreign attacks, a depression, hyperinflation, 2-pandemics, and many other seemingly catastrophic events that would forever put the globe into an unrecoverable tailspin. Yet, in each of those instances, people have found a way to move on, to innovate, to expand, invent, create, build, and follow their belief that the future will be brighter. And because of these historical facts alone, you need to plan or make a decision on how you will participate in getting to your finish line. Of course if you choose not to decide, you still have made a choice!
Let’s make a plan…our lines are open!