The Value of Perspective
As investors, it’s natural to pay close attention to the risks around us: inflation, interest rates, elections, geopolitical conflicts, government debt, artificial intelligence (and if it is going to kill off humanity). The headlines change, but there is almost always something that gives investors a reason to wonder whether this time might be different.
That is why, every so often, we believe it is helpful to step back from today’s headlines and look at markets through a much wider lens, or as we like to say: “zoom out”.
This year marks roughly 25 years since one of the most difficult periods investors have experienced in modern history. Beginning in 2000, the bursting of the technology bubble was followed by a recession, the September 11 attacks, corporate failures and accounting scandals. From its high in March 2000 to its low in October 2002, the S&P 500 declined approximately 49%.
For investors living through it, there was no shortage of reasons to be concerned. And importantly, those concerns were not imagined. They were very real. Yet consider what happened over the years that followed.
Investors encountered the Global Financial Crisis, a worldwide pandemic, wars, rapidly rising inflation, dramatically higher interest rates, political uncertainty and countless other events that, at the time, seemed capable of permanently changing the investment landscape. And still, businesses continued to grow, innovate and earn money. That last point is especially important.
In the long run, markets are driven by businesses and their earnings.
Day to day, markets can be influenced by nearly anything. An economic report, an election, an interest-rate announcement, a tweet, or a geopolitical event can move prices quickly. Over longer periods, however, owning stocks means owning pieces of real businesses. Ultimately, the value of those businesses is tied to their ability to grow and generate earnings.
That does not mean the path is smooth. Far from it.
Over the past quarter-century, investors have experienced two declines of roughly 50% along with many other corrections (defined as declines of 10% from a peak). At various points, abandoning stocks may have felt not only understandable, but prudent.
With the benefit of hindsight, however, we can see the potential cost of allowing short-term fear to dictate a long-term investment strategy.
There is another part of the story that can easily be overlooked: dividends. In 2001, the S&P 500 paid just under $16 per share in dividends. Today, annual dividends are approaching five times that amount. Behind those growing dividends is something tangible: businesses growing, generating cash and sharing a portion of that growth with their shareholders.
There will always be a reason to worry.
Twenty-five years ago, investors worried about the bursting of the technology bubble, terrorism, recession and corporate failures. Today, the questions are different. Are interest rates too high? Will inflation accelerate again? What will government debt mean for the economy? How will geopolitical conflicts affect markets? Are stocks too expensive? And increasingly: What will artificial intelligence mean for businesses, jobs and the world as we know it?
These are legitimate questions. Some of these developments may ultimately have profound economic and societal consequences. But from an investment-planning perspective, we believe there is another question that is even more important: has any of this changed your goals and what your money needs to accomplish for you?
If your long-term goals have not changed, dramatically changing a long-term investment strategy in response to the latest concern may actually make those goals harder to achieve.
Reacting to uncertainty does not change the source of that uncertainty. It simply changes your portfolio. A good financial plan does not depend on predicting the next crisis. There will always be recessions, bear markets, political surprises, technological disruptions and unsettling headlines. That is precisely why we plan. We maintain appropriate cash reserves for near-term needs, diversify portfolios, and invest long-term assets knowing that market declines are a normal part of investing.
That does not mean your portfolio should never change. Your investment strategy should evolve as your life evolves. The distinction is important: we want your portfolio responding to your life and your plan, not reacting to the headlines.
There will always be a reason to worry about the markets. Our job is not to predict what comes next. It is to build and continually refine a plan designed to carry you through it.
Feel free to reach out if you have any questions or want to have a conversation. Thank you, as always, for your trust and partnership. It is an honor to be of service.
Anne, Atricia, and your whole Curo team