To 2023, and beyond.
Originally published on January 5, 2023.
Black Barn Financial has exciting news to share!
I am delighted to announce that Kacie Swartz, CFP®, CIMA®, is joining Black Barn as our newest Managing Partner and wealth advisor.
Kacie has been in the financial services industry since 2001 and has been a CERTIFIED FINANCIAL PLANNER™ practitioner since 2012. For over 20 years, Kacie has been committed to simplifying financial concepts and making financial literacy accessible to everyone. You will be receiving additional information about this expansion to our team in the weeks ahead. I’m thrilled to welcome Kacie to the Black Barn team!
As many of you know, I used to teach classes about investing and the stock market. In class we spent a lot of time looking at charts and thinking about what we could have done (or should have done) during past market selloffs.
Calendar year 2022 was pretty bad for stocks (the S&P 500 is down 19.4%), and historically bad for bonds (AGG, a total U.S. bond index, is down 15%). It makes sense that as we move into 2023, we’re thinking “What’s in store for us this year?”
The answer is not simple. Down markets follow up markets and up markets follow down markets. We can never know in real time where we are in the cycle.
So if we are going to take some action – buy, sell, hold – we shouldn’t do it because we think we know where the market is going in 2023, but because we have some idea of where we are – as investors – and where we are going.
When I look at charts, I purposefully use a longer time horizon. I tend to think about wealth building in incremental terms over decades because it’s what I most often see. I have the privilege of talking to people about something that is rarely talked about in “polite company.” The truth I’ve gleaned from their money stories is that the vast majority of people who have financial security did not get there quickly. They did not invest in the next big thing before it was the next big thing. They did not have a feeling about when they should jump out and when they should jump in. And they did not get to skip the downturns.
Take a look at the chart below and imagine what was (or what would have been) going through your mind in 1974, 1987, 2001 or 2008. Do you remember what you were thinking in 2020? In what years should an investor have sold stocks? In what year should they have bought, or at the very least held on?
Source: Yahoo! Finance, retrieved January 4, 2023.
Every investor is at their own place on life’s path. Some are living off their investments now, some won’t start living off of investments for decades. Some are going through major life transitions, some are settling into a period of relatively little change.
The planning process puts you at the center of the decision making. If you know that there is money you’ll need in the next 12-24 months, one possible strategy is to carve it out and set it aside in something safe and predictable like Treasury bonds or CDs yielding 4.0 - 4.8%.
If you suspect that you won’t touch the money until 2028 or beyond, you might continue to consider stocks as a powerful path to building wealth. There's plenty of historical data to support the stocks-for-the-long-run mentality. In a recent post, Ben Carlson shared that, since 1950, the average 5-year cumulative return following a decline of 25% from all-time highs is, get this…83.3%. And that's just the average which means some returns were much higher. But because I'm sure you're curious, the worst 5-year return was 21.5%. Of course, as you know, past performance is no guarantee of future returns.
Comparatively, a very conservative investment in 5-year Treasury bonds is around 3.9%. Over five years, that's a cumulative return of 21.1%, which is on par with the worst historical experience with equities.
Your path will be different from your neighbor’s path, and that’s a good thing. Every investor has different needs and tolerance for risk. As we all work our way through 2023, consider taking a look at all of your specific financial resources to find the balance that can best serve you and your family this year and in years to come.