My daughter Addy is an athlete. She has worked extremely hard to train her body and mind, often exercising at
least twice a day. Recently Addy has had some issues with her feet. She is one of the 15% of the population with
an extra bone in each foot that can lead to tendon discomfort. She has dealt with this as a trooper, having to
wear a boot for two weeks so that the flare up would pass. But just as she was overcoming this temporary
obstacle, she rolled her ankle in soccer practice this past weekend and is in pain and discomfort yet again. These
issues have tested her patience as exercising and playing soccer are her releases, her passion. She is trying not to
be frustrated, and remains confident that she will be back to where she wants to be soon.
In our instant gratification society patience has become a rarity. We are so used to getting what we want when
we want it that we come to expect immediacy. But investing for the long-term, to create an income that you will
never outlive, or create multigenerational wealth, often requires a great deal of patience. Typically, when
patience is a scarce resource.
It was just a short while ago when the capital markets seemed like they only went up and portfolio values climbed
month after month. When planning updates showed higher and higher levels of income, patience was not in high
demand. Now that we are almost 14-months past the most recent highs in the broad S&P 500 Index, patience
may be wearing thin.
Thoughts of doing something different, anything to improve the situation, are common. Maybe it is the thought
of moving more into bonds, CD’s, or cash now that interest rates have risen significantly. Possibly the thought is
to move to complex hedging products that seductively are touted as somehow being able to do the impossible,
and provide more return with less risk.
But as Occam’s Razor dictates, the simple answer is usually the correct answer. In investing, historically, the best
road to take is the road not taken by the average investor. The road that most investors avoid when things
temporarily do not go smoothly, yet embrace when the capital markets seem like a much happier and more
content place. The simple, yet hard road, is to rely on your planning, on your Investment Policy Statement, and
the reason your portfolio is allocated the way that it is.
These temporary periods of time like what we have been experiencing should absolutely be expected. Not
wanted, but certainly expected. Using history as the only guide we have, the capital markets have typically
experienced 14% declines on average once a year. And every five or six years or so declines of more than 20%
have typically occurred. Yet even with these temporary swings, the capital markets have outpaced our number
one enemy, inflation and the loss of purchasing power, by about 7% per annum. Generating annualized rates of
return of around 10%, well in excess of the bond markets average annualized return of a still, not too shabby, 6%.
Could the markets sell off again, retracing its steps and temporarily finding new lows? Absolutely. Could the
markets find their footing and advance to new all-time highs? Absolutely. In fact this is almost guaranteed to
happen. We just don’t know when. In the meantime, just like my daughter Addy will need to be patient and give
her body time to repair itself, we need to be patient and allow the capital markets to do what they always have.
While just like Addy we may feel frustrated, like the news will always be bad, it won’t be. If we are patient, things
will get better. They always have before.