Recently I was speaking with a client and he called me a “turtle” which, honestly, took hold of me. I’ve never considered myself slow and nonchalant, and I imagine 99% of those who work with or know me would agree with me. As he and I continued talking, I had what Steven Covey (author of “7 Habits of Highly Effective People”) called an “A-HA Moment” – the moment when something confusing suddenly comes to light. .
I have always explained my approach to investing as a ‘straight line investing’, which simply means that the goal is for a client’s money to grow steadily over time, if their intentions are to grow. , or keeping principal intact and monthly interest, if their goal is income. On the other side of the equation is the approach to stock investing which is ultimately aimed at achieving higher returns for those with the stamina and stomach. I do not practice in the world of stocks, bonds and mutual funds. I am not allowed to do this. I am not anti-market – in fact, I have some of my own “in the market” funds. I work in the world of Safe Money products – those where primary security is the primary focus, and funds are never invested in positions in stocks or bonds.
New clients (prospects) often ask me for my opinion on what is the best approach in today’s difficult world of volatility and low interest rates. The truth is, I can’t say it for sure. The truth is, no one can. It is a personal decision that each investor must make for himself. I have gained many clients over the years when the markets are turbulent. I would prefer to have discussions with prospects when the markets are booming. My philosophy is that making decisions about the market or investing safely in times of turbulence is not healthy – because those decisions often come from fear rather than confidence in the planning process. When the markets are boiling, I hear the radio waves full of “doomsday predictions” – this is not an ethical way to market but “ethics in marketing” is a discussion for another article.
Simple research would show that the S&P 500 Index (a well-known benchmark of general stock market performance) has returned an average of 6.48% over a ten-year period (as of 1/31/16). The results of spending related to investing in the market are not included in this number. Asset management fees (fees) continue to be debated in financial circles, but even considering one of the lowest management costs in the industry – Vanguard – the 10-year performance of their S&P 500 Index Fund (VFINX) was 6.36%.
Our 10-year investment models, which use multiple safe money products, are on par with the numbers above. However, if you look at the 3 and 5 year S&P 500 returns, they have achieved several points higher than our model. The challenge of looking at the past as an indication of future performance is like a “dog chasing its tail”. The decision to invest in the market versus safe investing rests more on the comfort of the individual (or institutions) in “the journey”. A very simplistic example is the two charts below, which illustrate that over the past 10 years, the end points of Safe Money (capital protected) investing and market investing are very similar.
One (the turtle) is the Safe Money ride – slow and steady – “Straight Line” – nothing too fancy. The second is the market (the hare) – a much wilder ride of ups and downs – bursts and setbacks.
Ultimately, the decision to invest comes down to investors’ risk appetite or risk aversion. There is no way to predict future trends – either in the market or in interest rate movements. I will continue to seek opportunities for my clients that offer capital protection and competitive returns over other safe money products such as traditional offerings from banks and insurance companies.