Over the weekend, I had the pleasure of reading a new release on the subject of markets, Ben Carlson’s “Risk & Reward.” Over the years, I’ve regularly recommended a variety of books and texts on the subject of personal finance, whether they be on budgeting, money mindset, and maturity, or just plain old investing. One of my favorites for a while now has been Nick Maggiulli’s “Just Keep Buying,” which condenses the topics of saving and investing into fairly actionable and bite-sized arguments for saving, then saving more, then getting invested, and then staying invested. Carlson’s new release takes a different tack to answer what is fundamentally the same question: “What if this time it’s different?”
While Sir John Templeton mocked the questioner in that famous quote, Risk & Reward goes at the problem directly. It lays out problem after problem with the market, those ever-so-common objections people levy at investing (What about inflation? What about Japan? What about the market high? What if this isn’t the bottom? What about gold, real estate, and crypto?) and utterly dismantles them with a clean and straightforward display of data. An enormous amount of data, in fact. Ironically, it only took me about 3 or 4 chapters into the book before I found myself saying, “Okay, I get it.” I still finished the book, mind you, and I think it’s an exceptional read for someone yet to be convinced that investing in the market with diversified and low-cost index funds is the most reliable way to build wealth. But it also beats the point to death in a stunningly passive fashion. Despite the ups and downs, the trendline of history remains undefeated. “I feel bad for you,” says the man sitting in cash to the investor during rough markets, who replies: “I don’t think about you at all.”
Where’s the Uncertainty?
If you haven’t looked around at the markets in the past week or so, let me catch you up. As of this writing, we’re generally sitting at an all-time high. As of the individual keystroke of writing, I think an index or two might be off their all-time high by half a percentage point or some such, but you get my point. “The market has never been as high as it is today,” generally speaking. Notably, then, my inbox is quiet. I still get 150-200 emails a day, but none of them for the past few weeks have been from clients raising concerns about current events. Two months ago, we were wincing at what might happen because of the war in Iran, but today the worst part of that seems to be the relatively benign* price at the pump. A year or so ago, we were ever-so-concerned about tariffs and the impact they’d have on prices, but inflation remained essentially flat at the time.
*Not to say it’s fun to pay 2x what gas cost a few months ago, but all things considered, it’s a rather nominal impact overall for a war in a major energy shipping lane to have caused.
We have to hop in the time machine to the way-back past of November 2024 to hear other concerns raised by some after the election. Even further back to 2022, when the stock and bond markets defied their normal low-correlation behavior to sink for essentially 9 months straight on the back of interest rate increases post-COVID, and all the further back to 2020, when the markets appeared to crash and rebound in a matter of weeks during the pandemic itself. And so on and so forth: A crisis du jour (“de l’année?”) that only seems to emerge when anything bad happens. “What are we doing about this global or domestic geopolitical event or trend that we have no power over? Now that we’re in the middle of the storm, do you think we should not have gone into the storm?”
By the power of a functional crystal ball, we’d all happily avoid the problems of the day and skate merrily on our way. But that’s not how this works, and so we are faced with a set of choices. Take it very slow and steady, knowing we could make more wealth were we more tolerant of the roiling nature of markets; or, strap in and take the ride, knowing with all but total certainty that if you stay on the ride long enough, you’ll be fine.
Greek Tragedies
Last week I had the pleasure of attending a performance of Hadestown at the Buell Theater. Hadestown is a New Orleans Jazz-style retelling of the Greek myth of Orpheus and Eurydice; you know the one. Oh, okay, fine, for those who skipped or slept through that class: Eurydice dies and goes to Hades, and Orpheus goes to save her. Hades sets Orpheus to the trial that if he can walk back to the surface of the earth from Hades without looking back to see if Eurydice is following, Eurydice can live again. Despite the simplicity of the task, at the mouth of the cave leading back to the real world, Orpheus cannot help but look back just in time to see Eurydice before she can step into the light; and so, back to Hades she goes.
Investors face a similar conundrum. You are pummeled with a great deal of evidence, in fact, an overwhelming mountain of it, that being and staying invested in a diversified manner long term is the most reliable path to wealth. Don’t get me wrong, that doesn’t mean you couldn’t have done better by buying Bitcoin back in 2009, or by shorting tech stocks at the start of this year, or buying oil futures in anticipation that the President might start bombing the Middle East and blockade 20% of the world’s energy supply. Again, if only you had the power of a functioning crystal ball! But make similarly wild bets at any other time in history, and you’d be unlikely to prevail in your aim to build wealth and live a life best lived.
And so the road out of hell is so simply paved: save, invest, stay invested. Rinse and repeat. Yet, the temptation arises time and time again to look back. To worry about how high you’ve climbed and whether now is the time to change your pace or your direction. Yet so few people ask me if now is a time to de-risk when the market is at its all-time high, and only after they’ve locked eyes with something terrible in the markets do they find themselves suddenly grasping for an opportunity to change their portfolios and their fate. But all you have to do is stay the course. Walk forward. Save, invest, stay invested, rinse repeat. Save, invest, stay invested, rinse repeat. Simple. Simple simple simple SIMPLE. Simple. That is all it takes. Whether you save more or less now or later is a decision. How you invest, whether conservatively or aggressively, is a decision. Those two decisions are most easily made. It’s the third decision, to stay invested, that tends to get people.
Do you want to know one of the most patronizingly frustrating things about both investors and financial advisors? There are a plethora of studies that attempt to operationalize and measure the value of financial planning and investment management. The most conservative post the value of financial planning around 1.5% in improved returns a year, and the most absurdly generous post is much closer to 5%. I personally tend to favor the more conservative figure, if only out of humility and skepticism. But most notably, all of these studies agree about one specific claim: The most valuable thing any financial professional does for their clients is help moderate their behavior. Keep them from yielding to the temptation to make avoidable mistakes, keep them disciplined on the path to financial freedom, and to otherwise fill in the rest of the value proposition with advanced tax knowledge and whatnot.
Imagine that. Imagine studying for years, mastering your craft, heck, obtaining a Ph.D. in your chosen field just to better master and expand the body of knowledge in your profession. Only to find there is no greater evidence out there than that which shows that your number one value proposition isn’t something constructive or creative: it’s gatekeeping people from self-destructive behaviors and impulses. You’re far more valuable as a therapist than you are as a money manager or tax-reducer. Because no matter how many tens or hundreds of millions you make for your clients, or how much money in taxes you help them avoid or eliminate, you can never outweigh the power of just keeping them from making one financially disastrous mistake.
Harumph.
Farewell to Uncertainty
I’ll admit, I’m fond of Bertrand Russell’s work. He said: “The problem with the world is that fools and fanatics are so certain, and wiser men so full of doubts.” I have many doubts, fortunately, and I’m mindful that where I am certain, I might just be a fool or a fanatic. But I find myself tired (imagine that!) of the idea that anything happening at any given time in the markets is worth responding to. I maintain that you should obviously step out of the way of oncoming trains, but that otherwise, generally speaking, you should enjoy the ride you set out on your voyage upon. Aggressive? It’s going to be bumpy, but you’ll get there sooner than later. Conservative? There will still be bumps, but hopefully you’ll rest more easily.
Whatever path you pick, just remember that the correct answer never changes. “Save, invest, and stay invested. Rinse and repeat.” Of that, I am entirely certain.
Oh, and if it wasn’t obvious, Risk & Reward is a 5 of 5 read.
Dr. Daniel M. Yerger is the President of MY Wealth Planners®, a fee-only financial planning firm serving Longmont, CO’s accomplished professionals.