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Lessons on Volatility from Isla (& a Rollercoaster)

In this week’s messages, Tim shares some tips/insights he gleaned from his 3-year-old daughter Isla’s recent rollercoaster experience that can help investors successfully navigate market volatility to achieve the experience/result that got them “on the ride” in the first place.


  1. Equity Markets – were higher this week with U.S. stocks (S&P 500) up 1.49% while international stocks (EAFE) rose 1.79%.

  2. Fixed Income Markets – were lower with investment grade bonds (AGG) down -1.10% while high yield bonds (JNK) fell -0.58%.

  3. Central Bank Surprises – This week saw some surprising central bank decision-making with the Bank of England setting a hawkish tone by announcing a rate hike to 0.50% with almost half of its policy makers wanting more. This hike comes on the heels of a December increase, marking the first back-to-back increases since 2004 amid ongoing inflationary concerns. Meanwhile the European central bank left policy unchanged but did suggest rate hikes were likely before year-end.
  4. 4. Inflation Lingering – Data from Turkey this week showed prices accelerated by an annualized rate of 48.7% in January as a result of the country’s “unique” approach to monetary policy of slashing its policy rate by over 500 basis points to 14%, leading to a negative 35% when adjusted for inflation and in turn sending the Turkish Lira into a tailspin. On a global front the United Nations reported that worldwide food prices reached a record high last month.
  5. Key Insight – [VIDEO & ARTICLE] In this week’s messages, Tim shares some tips/insights he gleaned from his 3-year-old daughter Isla’s recent rollercoaster experience that can help investors successfully navigate market volatility to achieve the experience/result that got them “on the ride” in the first place.

INSIGHTS for INVESTORS Lessons on Volatility Isla (& a Rollercoaster)


What was supposed to be a nice week away with the family at Disneyworld (and still was), became a bit more “exciting” as both the equity markets and the weather in Orlando decided to storm despite their respective “weather reports.” While there were definitely some challenging moments full of 40-degree rain and anxious phones calls as we made our way around the park, thankfully we were as prepared one could to endure. Whether that was our umbrellas and coats in respect to the weather, or our timely raised cash and alternatives that sheltered our clients from much of the losses in the market.

During the trip I learned just what a trooper/daredevil my littlest daughter Isla is, as she jumped at the chance to do any “scary” ride her little 39.5 inch frame could sneak onto, including the pretty intense (despite its name) Slinky Dog Dash rollercoaster at Hollywood Studios (if you are interested here is a link to the ride, start at the 1:10 mark - https://www.youtube.com/watch?v=vK3ZrMgyLVQ).

Little Isla not only wanted to do the ride, but she also wanted to sit in the front row (see our photo below), which we did. Our conversation afterward, particularly in light of the markets I was keeping an eye on, is the inspiration for this week’s commentary.

Why Even Get on the Ride?

If you spend the time, money, and effort to get all the way to Orlando you don’t then sit and just watch everyone else ride the rides. Similarly, if you put in all the effort to work and save money to help provide your family both with security and the ability to reach some financial goals/dreams, you don’t just hold it in cash or panic sell into market volatility.

As neat as it can be to watch the ride from the ground and the fun others are having, it’s no substitute for the thrill of taking part. As an investor, if you want the chance to take part in the power of the markets to give you the “thrill” of compounding wealth over time, you too will have to accept the sometimes-stomach-turning twists and turns that markets will give you.

Not everyone has the same risk-tolerance and thrill-seeking bent it would appear Isla has, but there are some other compelling reasons to buckle up and take the ride – namely the erosive impact of inflation. As you can see from the chart below, its power to erode wealth is every bit as powerful as markets ability to grow it and far scarier and more permanent than some market volatility.

The takeaway? You are getting on a ride whether you like it or not. The choice is between a less volatile one that is actually more dangerous to your long-term wealth (e.g., holding cash and inflations impact), or one that has a few more twists and turns but has shown an ability to grow one’s wealth dramatically over time (e.g., a portfolio comprised at least in part of equities).

Lessons with Isla

When we finished the ride, and I caught my own breath, I told Isla how proud I was of her and asked her what she thought of the ride and if it was scary?! She answered that yes, it was a little scary, but with a defiant and feisty tone followed that right up with “but I liked it.”

I then asked her how she made it through the scary parts? And she had three things to say that I think we all as investors can keep in mind too.

1. “Well I had my seatbelt on…”

Perhaps the thrill of riding a rollercoaster without a seatbelt on is that much greater, (and presumably centrical force could keep you in your seat), but I have no interest in taking such a ride. Just like Isla, I want to have some additional safety measures to not only keep me safe, but in so doing actually help enjoy the ride a bit more. As an investor, one can take similar precautions through proper diversification.

For years that meant something as simple as a nice 60/40 blend of U.S. stocks and bonds, but as we’ve warned you in prior commentary’s (see 6/11/21 or 6/18/21 for examples) that likely won’t suffice moving forward – which is showing up now in recent performance of such allocations, (see https://www.thewealthadvisor.com/article/6040-portfolio-has-worst-loss-march-2020-fed?mkt_tok=NDQ2LVVIUy0wMTMAAAGCVYLONsu7N1teicmIaWS95xS96QuDZ8kYMg-pLRBVTCnupNZD_Fn9lk3tSA0SJbZWya87QxKdkwJ4Mh2lHqn5ZqE70daXJksl3JvPeM54cvWy).

However, for investors like those at TEN Capital that embrace a broader approach to diversification, this recent downturn was far less turbulent thanks to international equity and real estate positions that have managed positive returns year to date versus the S&P 500’s 5% decline, alternatives that are flat to slightly down, and lower duration fixed income that is meaningfully outperforming the broader bond index’s 1.6% decline.

And just like you need to keep your “hands and arms” inside the ride on a rollercoaster, so too do you need to regularly rebalance portfolios and “bring in” positions that have gotten outside their proper limits, which we did just before volatility picked up as part of our process.

Diversification and process-oriented actions like rebalancing are two keyways to keep investors safe, reduce volatility and very often improve the experience over time as well.

2. “I held your hand really tight…”

And that she did. The lesson here is that whatever meaningful journey you are going to take, it’s great to have a good, experienced partner. God gave Elijah, Elisha to pick him up and lend support on his journey centuries ago, Isla and I had each other on Slinky Dog last week, and of course we are honored to be a partner to so many of you in the years to come.

A quality partner needs to do a few important things.

First, they need to take the ride with you. My “support” wouldn’t have meant much to Isla had I not sat down next to her, and similarly your advisor should be practicing and investing in a way that is in line with his/her advice.

Second, they need to understand and be willing to engage the emotional side of the journey, not just the “math.” Sure, I knew we were safe on that rollercoaster, but that doesn’t take away stomach-turning-times that occur during the ride and trying to explain some elementary physics to Isla wasn’t going to be nearly as meaningful to her as sitting alongside her, acknowledging her nerves, and simply holding her hand. Here at TEN, we both acknowledge and formally work to address the emotional side of investing from our initial Cornerstone Conversation to get to know clients, to writing these weekly messages, to simply talking with clients whenever they need to chat.

Finally, a good partner should have some experience with the journey ahead. Outside of being their daddy, Addy and Isla trusted me to get on the rollercoaster because they knew Rach and I had rode on one before, knew we’d be okay, and would never put them in a position to be harmed. So too a good advisor should be able to speak from experience and be able to speak from that experience when they assure you that you’ll be okay.

Perhaps you are thinking, “nice sentiments, but does the math back that up?” Consider the Vanguard study highlighted by Smartasset which, “found that a $500K investment could grow to an average of $3.4 million under the care of an advisor after 25 years, compared to the $1.69 million expected value of a self-managed portfolio -- 50% less. Put another way, an advisor-managed portfolio would appreciate at an annualized growth of 8% over a 25-year period, compared to a 5% growth rate for a self-managed portfolio.”

3. “Sometimes I closed my eyes…”

Perhaps the last important, and unavoidable, truth to share is that sometimes there is nothing to do but a) accept one’s current circumstances, and b) patiently wait for them to pass. Even with a tight seat belt and daddy’s hand to hold, there were times the way to make it through the ride for her was to simply close her eyes and wait.

There are moments where this is also true for us as investors. We can dampen the volatility with diversification, assure ourselves and each other about the historic resiliency of markets, and yet none of those can change what the stock market is going to do on a given day or over a given period.

Just like a rider on a rollercoaster, the correct course of action for a prepared investor once the rides begins is to sit tight and hold on! And just like a rollercoaster, while volatility is part of an investor’s journey, it doesn’t last forever.

It’s said that “volatility is the price an investor pays to make money in the market.” Put another way, you should no more try to invest and expect to avoid volatility than get on a rollercoaster and expect a smooth flat ride. In fact, the higher things go, the tighter your seat belt should be and the more prepared for a wild ride you should be.

Remember, corrections in the stock market happen on average every 18 months and have an average “drop” of 14%, and yet it is also true that 75% of years still manage a positive return and the long-term stock market average is approximately 10%.

In Closing

Some things come with the territory. If you want to experience the thrill of a rollercoaster, you have to get on the ride and accept the twists and turns. Similarly, as an investor if you want the thrill of making money over time, you need to accept the volatility that occurs periodically.

To help with that journey, have a good “seat belt” with some safer positions as part of your allocation, a good hand to hold in your advisor/partner, and don’t feel bad if sometimes you just need to close your eyes and hold on.

Each of Isla’s lessons are just part of taking the ride, but with some understanding and application of them to your journey you’ll not only make it through, but in all likelihood, be smiling at the end too! (I promise the picture below is from after the ride).

Have a wonderful weekend,

Tim and the team at TEN Capital

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