Written by Rob Wrubel, CFP
Mountains, Angry Gorillas and Market Certainty
Most days I have an amazing view on my two mile commute from my house to office. When it is light enough in the morning I get an incredible view of Pikes Peak – a 14,000 foot mountain dominating the skyline here in Colorado Springs. Kathy Lee Bates wrote the song “America The Beautiful” while here after taking a trip up to the top of the mountain. Much of the spring and fall the view is of the purple mountain majesties (although our plains are not always so fruited). If you live here or have visited, you understand the size and scale of the nearby Rocky Mountains. The rolling plains meet the towering peaks right here.
Why the brief commercial for Colorado? What does any of this have to do with my investments, the direction of the market and how we plan to generate earnings and growth over time? And why the angry gorilla in the title? As financial advisors and planners, we need to look at the big goals you have in life. Retirement. Buying a house. Leaving a legacy for family or charity. Funding education. Traveling around the world. Taking a sabbatical. Starting a business. The list goes on and you have some fantastic ideas on how to live life. Reaching these goals can seem impossible, hard and the path full of danger. The first recorded people who climbed the local mountains must have looked at them through the same eyes. The journey would be hard. Long. Dangerous. But they persevered, used the peak as a compass and reached the summit. Success comes from targeting a goal, taking steps to prepare, keeping the dream alive with emotion and spirit and taking the right actions to get there.
Life goals are no different than climbing the peak. The financial component to pay for these goals follows the same steps—target the goal, prepare, keep the dream alive and take the right actions. We sit with you first to brainstorm and then define the most important parts of your life that require savings and future investment or income. Retirement is always a component as we have to fund our future with today’s income. Saving for another goal, like a vacation home, requires some degree of focus in the short term. It might require additional savings from changing current lifestyle. It might require earning extra income from longer hours or increased entrepreneurial efforts. Whatever it is for you, we need to map out the steps to take to achieve the goal.
We need to make choices along the way about how we expect the money to grow. Goals for next year—like taking a vacation or sabbatical— require safety of principal. The money needs to be saved today and kept easily accessible. Money for the future requires a choice. Invest in stocks, bonds, real estate or commodities or keep in a bank account? How do we have a chance for the savings to make money and benefit from compound interest? Will it keep pace with inflation? Should we use insurance tools to protect some of the income or principal?
Over time, investing in stocks has created significant wealth for people in the U.S. Stock prices have grown and people have been able to use dividends to add to wealth or pay for their lifestyle. This chance for wealth creation comes with a degree of turbulence—stocks have not ever moved in a straight line in any one year.
Enter the angry gorilla. The angry gorilla walks into the room and demands what it wants, and wants it now. Are you going to stop it? The angry gorilla does not want to wait for tomorrow, it cannot be reasonable and it won’t take no for an answer.
The angry gorilla is our response to investing. We want our money to grow and hate to see it go down in value—ever. We want instantaneous returns and we want it now. Unfortunately, the angry gorilla can be easily misled. Last week during a visit to clients in California I read the story of firemen and women who lost their life savings. They had been taken in a swindle where they had been promised 30% returns a year. Too many of the gorillas grabbed the chance, and lost everything they had. It was too easy and too quick and turned out not to be true. Investing over time requires us to manage the angry gorilla. Sometimes the gorilla gets angry when the returns are below the market—in any given day, week or year. Sometimes the gorilla gets angry and flees the room when returns are negative. Sometimes the gorilla gets angry from too much bad news, noise and distress coming from the people around it. As investors, we cannot ignore the gorilla. We also cannot let the gorilla rule as it will careen around wrecking havoc as it goes. As investors, we need to build portfolios modeled on sound and established theory. We should not abandon our plans, policies and investments quickly. Research proves that investors who chase the hot sector, hot stock or hot asset class each month and each year do worse than those with more patience.
The first people who reached the summit of Pikes Peak did not abandon their plans. They learned, adjusted and kept going. We look to build portfolios in a similar fashion, ones that can stand the rigors of the market yet keep pointing towards the peaks you seek to reach.