I am amazed at the resiliency of everyday people. When my mother was 39 years old, my father passed away (he was 43). My mom was a stay-at-home parent and taught piano lessons to earn a little spending money. At the time of our father’s passing, my oldest sibling was 16 years old and youngest was five years old (I was seven).
To make matters more exciting, shortly before my father’s passing, my parents used virtually all of their savings to purchase a Chevrolet Suburban. We had very little cash in the bank and little income but the bills still remained. My mom did not have recent work experience (when children came into the house, my mom discontinued her teaching career), six children to provide for, etc. I think it fair to say that my mother was very stressed at that time and didn’t know what the future would hold for her and her family.
While the years that followed were not easy, my mom, with the help of others, found solutions to problems. I think if you were to ask her, she would tell you that she learned to focus on the things she could control and not worry about the things outside her control. One of the primary things my mom focused on (and continues to focus on), since the death of her husband, is the importance of family.
It has been more than 46 years since my father’s passing but things have worked out better than we all could have imagined. My siblings and I all had college educations, been married, had families of our own, successful careers and about 24 years after my father’s passing, my mother remarried. I think my mom’s focus on family is the primary reason why my siblings and I have been successful in life.
We recognize that if my mom focused on the trials and tragedy of life, we could have grown up bitter with how unfair life can seem at times. I believe this bitterness would have led us to completely different outcomes. Once again, I am amazed at the resiliency of people.
This leads us to the current situation we ourselves face. As of May 2022, we are dealing with 8% inflation, a war in Ukraine, residual impacts from the global COVID pandemic, continued supply chain shortages, concerns about a recession, etc. At this time, many people are wondering, like my mom many years ago, what will the future hold for us?
Recently I was reading a brief message from one of the thought leaders we follow, David Butler of Dimensional Fund Advisors. I feel his comments directly respond to the concerns listed above. He shared the following in his perspective:
“We are living in a time of extreme uncertainty and the anxiety that comes along with it. Against the backdrop of war, humanitarian crisis, and economic hardship, it’s natural to wonder what effect these world events will have on our long-term investment performance.
“While these challenges certainly warrant our attention and deep concern, they don’t have to be a reason to panic about markets when you’re focused on long-term investing.
“Imagine it’s 25 years ago, 1997:
- J.K. Rowling just published the first Harry Potter book.
- General Motors is releasing the EV1, an electric car with a range of 60 miles.
- The internet is in its infancy, Y2K looms, and everyone is worried about the Russian financial crisis.
“A stranger offers to tell you what’s going to happen over the course of the next 25 years. Here’s the big question: Would you invest in the stock market knowing the following events were going to happen? And could you stay invested?
- Asian contagion
- Russian default
- Tech collapse
- Stocks’ “lost decade”
- Great Recession
- Global pandemic
- Second Russian default
“With everything I just mentioned, what would you have done? Gotten into the market? Gotten out? Increased your equity holdings? Decreased them?
“Well, let’s look at what happened.
“From January of 1997 to December of 2021, the US stock market returned, on average, 9.8% a year.1
“A dollar invested at the beginning of the period would be worth about $10.25 at the end of the period.2
“These returns are very much in line with what returns have been over the history of the stock market. How can that be? The market is doing its job. It’s science.
Investing in markets is uncertain. It’s the role of markets to price out that uncertainty.
“Investing in markets is uncertain. The role of markets is to price in that uncertainty. There were a lot of negative surprises over the past 25 years, but there were a lot of positive ones as well. The net result was a stock market return that seems very reasonable, even generous. It’s a tribute to human ingenuity that when negative forces pop up, people and companies respond and mobilize to get things back on track.
“Human ingenuity created incredible innovations over the past 25 years. Plenty of things went wrong, but plenty of things went right. There’s always opportunity out there. Think about how different life is from the way it was in 1999: the way we work, the way we communicate, the way we live. For example, the gross domestic product of the US in 1997 was $8.6 trillion and grew to $23 trillion in 2021.
“I am an eternal optimist, because I believe in people. I have an unshakable faith in human beings’ ability to deal with tough times. In 1997, few would have forecast a nearly 10% average return for the stock market. But that remarkable return was available to anyone who could open an investment account, buy a broad-market portfolio, and let the market do its job.
“Investing in the stock market is always uncertain. Uncertainty never goes away. If it did, there wouldn’t be a stock market. It’s because of uncertainty that we have a positive premium when investing in stocks vs. relatively riskless assets. In my opinion, reaping the benefits of the stock market requires being a long-term investor.
“By investing in a market portfolio, you’re not trying to figure out which stocks are going to thrive, and which aren’t going to be able to recover. You’re betting on human ingenuity to solve problems.
“The pandemic was a big blow to the economy. But people, companies and markets adapt. That’s my worldview. Whatever the next blow we face, I have faith that we will meet the challenge in ways we can’t forecast.
“I would never try to predict what might happen in the next 25 years. But I do believe the best investment strategy going forward is to keep in mind the lesson learned from that stranger back in 1997: Don’t panic. Invest for the long term.”
I too am an optimist. I believe in the resiliency of people – that we will find solutions and face all challenges before us. Just as my mom focused on what was most important for her and her family after the passing of her husband, we too can focus on those things that are most important when it comes to our investment outlook:
- Create an investment plan to fit your needs and risk tolerance. (https://www.montageadvisors.com/blog/to-van-or-not-to-van-that-is-the-investment-question)
- Structure a portfolio along the dimensions of expected returns. (https://www.montageadvisors.com/blog/marital-bliss-and-dimensions-of-return)
- Diversify globally. (https://www.montageadvisors.com/blog/road-trips-and-diversification)
- Manage expenses, investment turnover and taxes.
- Stay disciplined through market dips and swings. (https://www.montageadvisors.com/blog/speeding-tickets-and-timing-the-market)
As we focus on the things we can control, we can find peace in our lives. Even in times of trial, we should continue to find ways to living life richly – our outlook on life will greatly help us as we seek a rich and fulfilling life.
- 1In US dollars. S&P 500 Index annual returns 1997–2021. S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
- 2Data presented for the growth of $1 are hypothetical and assume reinvestment of income and no transaction costs or taxes. This value is for educational purposes only and is not indicative of any investment.