Lessons Learned

Lessons Learned

In the spirit of New Year’s Resolutions season, our advisors share financial lessons they have personally learned and/or applied over the years that they hope can be a benefit to others.

Five Things You Should Know

1. Equity Markets – were lower this week with U.S. stocks (S&P 500) down -0.14% while international stocks (EAFE) fell -0.35%.
2. Fixed Income Markets – were lower with investment grade bonds (AGG) down -0.99% while high yield bonds (JNK) fell -1.07%.
3. Government Funded – building off last week’s news of Congress passing the $1.7T spending bill, President Biden officially signed off on it Thursday, preventing a shutdown and keeping the government funded through September. Along with the massive defense and education budgets, lawmakers tacked on items such as a new set of rules to help Americans save for retirement, an overhaul of the federal procedure of counting electoral votes, and more funds for law enforcement across the nation.
4. Winter Is Here – the holiday season saw arctic temperatures sweeping across the nation causing power outages, dangerous driving, and traveling woes. Southwest Airlines canceled 62% of their flights nationwide on Tuesday alone, and Citi analysts say their blunders could lead to a dip between 3% and 5% of their Q4 profits. Their ‘holiday meltdown’ left thousands of travelers stranded at airports and has prompted the U.S. DOT to launch an investigation calling it, “disproportionate and unacceptable”.
5. Key Insight – [VIDEO] In the spirit of New Year’s Resolutions season, our advisors share financial lessons they have personally learned and/or applied over the years that they hope can be a benefit to others. [ARTICLE] The disconnect between what many investors say, what they believe, and what they do is very real, especially when it comes to speculating and predicting. We share a great guest article that highlights this dilemma and helps point people back in the right direction.

Insights for Investors

It’s that time of the year when despite repeated failures in attempting to predict what lies ahead, pundits from across the investment industries muster the courage/shamelessness to try once more.

I’m not sure when the phrase, “if at first you don’t succeed, try, try again” was coined by Edward Hickson, this type of behavior is what he had in mind.

Investing can accomplish wonderful things for the patient, but investors must remember the constant powerful forces that exist to derail them on their journey including fear, greed, and countless “narratives.”

What can help them is a) a plan that works for them even when markets are not, b) perspective – for all the drama of the last few years consider that the S&P 500 is still up over 25% from where it was three years ago for a high single digit average return and c) a partner to help create and hold you accountable to both the above.

All of this is especially hard during tough times and/or bear markets but look at the chart below reflecting bullish investment sentiment over the years. If you look closely, you’ll see that when investors are their most bullish, markets are usually nearing a top (i.e., good time to sell), and when investors are overly bearish, that is when historically one should have been buying.

As the folks Bespoke pointed out regarding this chart/data while, “Individual investor bullish sentiment increased more than five percentage points [it] still remains depressed at less than 26%. This week's results also officially confirm that 2022 will be the first year in the history of the survey (since 1987) that bullish sentiment was below its historical average every week of the year.”

In short, we at TEN enter 2023 confident. Confident because our plans and portfolios are built on the expectation that there will be tough times, not on the foolish arrogance of believing one can avoid them through predictions. Confident because of the time and effort my partners and I invest in supporting each other and our clients to sustain the relationships that are so crucial at these moments. However, if I am completely honest, my confidence is also buoyed by how despondent most investors are these days (see above), and my knowledge that markets tend to make a habit out of surprising the crowd.

Happy New Year and best wishes to you and yours!

Tim and team at TEN Capital
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This Has Been a Test: Developing a Financial Plan You Can Stick With
David Booth Executive Chairman and Founder

Think back to December 2019. The economy was humming. Unemployment, interest rates, and inflation were at historically low levels. But then what happened?

• A global pandemic hit. By the end of March, the S&P 500 had dropped nearly 20% in value.¹
• Later in the year, scientists announced that they’d developed a vaccine, and markets roared back.
• FAANG stocks soared … before giving up a lot of gains.²
• Meme stocks shot way up … and fell back down.
• Bitcoin and other cryptocurrencies reached record highs … and then crashed.
• Inflation spiked to the highest levels most of us have ever experienced.³
• And Russia invaded Ukraine, sparking a humanitarian crisis and geopolitical uncertainty.

I don’t know anyone who predicted all of that back in December 2019. But what if someone had? What would you have done?

Next question: What if that person told you that, despite all that news, the Russell 3000 would average a return of 10% a year over the next three years?⁴ Would you have believed them? Would you have stayed in the market?

Because that’s what happened. A yearly return of 10%! That’s pretty darn close to the stock market’s historical average over the past century.⁵

The conclusion I hope you reach is that it’s unrealistic to think you can outguess markets. You’re probably better off expecting that markets do their job of capturing the human ingenuity taking place every day across thousands of publicly traded companies around the world.

What do I mean by markets doing their job? When news of the pandemic hit, markets adjusted and prices went down. In other words, when uncertainty peaked around March 2020, investors demanded a higher return to jump into the market. Then, when news of a vaccine spread, the market adjusted its expectations accordingly. In the short term, there are often wild swings up or down. Making a change during either can be dangerous.

The past three years were a good test of whether or not you had an investment plan that was sensible to stick with. So take a moment to think about why you did what you did, and prepare for next time. Because the next three years may be just as uncertain.

First, make sure your investment plan is sensible and based on financial science. Second, make sure it’s realistic for you and your own unique situation. Even the greatest plan is no good if you can't stick with it during tough times. Invest in markets in whatever asset mix is right for you. If you’re not sure, talk with a financial advisor who can help you.

What has stayed constant throughout my life is the power of people to make progress in the face of challenges.

I don’t make predictions, but I do believe in the power of human ingenuity to fix problems big and small, innovating the whole way. What has stayed constant throughout my life is the power of people to make progress in the face of challenges.

We’ve seen it in the fight against COVID-19, where vaccines developed at lightning speed are now being administered around the world. We’ve seen it in the continued progress of gene therapy, which is revolutionizing the treatment of multiple diseases. So as we start 2023, let’s remember the lessons of the past three years. Let’s develop—and stick to—plans that take us through the short-term ups and downs of market fluctuations so we can capture the long-term benefits of human ingenuity.

CLICK FOR FOOTNOTES & DISCLOSURES

Data, Just the Data

Data points this (light) week included:

• U.S. Jobless Claims – expanded by 9K to a claimant count of 225K for the week ending December 24^th. This was on point with forecasts of 225K claimants and still points to a strong labor market. The four-week moving average fell fractionally from 221.7K to 221K.
• U.S. International Trade Advance – the trade deficit narrowed by a whopping 15.6% from the previous month to ($83.3B) for November. This is the largest decline in the deficit since 2009 and marks the smallest deficit since December 2020. Imports fell (7.6%) as consumers are purchasing less goods and focusing more on services. Purchases for capital goods, consumer goods, and industrial supplies all contracted, (4.3%), (13%), and (6%), respectively. Exports also slowed slightly, but still expanded 3.1%.