The Future is Uncertain (2020)

The Future is Uncertain (2020)

You probably clicked on this post because the title was relatable in a certain way.

How did it make you feel?

Vulnerable? Scared? Expecting to read how we’re headed for the biggest economic collapse since 1930?

Or maybe excited, interested? Or simply indifferent?

Whatever the case is, if you’re reading this blog you’re most probably interested in growing and maintaining a diversified, long-term, passive portfolio, understanding exactly what “time in the market beats timing the market” conveys.

In that case, you shouldn’t fear the markets at all. If you do, it contradicts your investment strategy and you should immediately reevaluate one of the following factors:

Risk taking willingness
Risk taking ability

I already have dozens of post that can help you make a better assessment of your risk tolerance, but would recommend setting yourself in the right mood by reading the following post first:

Your Role in the Next Big Thing

With that said, let’s see where we stand at this moment. Here’s the S&P 500’s performance in the past 6 months, as a representative for the stock market:

future-uncertain

Pretty volatile, yes. However, if you already determined your investment strategy and asset allocation, you should be pretty indifferent. If you expected to see technical analysis (which doesn’t work in semi-efficient markets) or speculation (“where the S&P will end up in 2020”) you’re set for disappointment. A piece of financial advice might come in handy: don’t trade based solely on what you read.

And for total peace of mind, don’t listen to economist. I can’t say “nobody knows what’s going to happen” because some of them (us?) apparently do. Some of the prophecies will be fulfilled. Some with a delay when they’re no longer relevant. And some won’t. So, picking the right economist is like picking the right stock. Maybe the right thing to do is diversifying in terms of the investors you trust so that you allocate your investments accordingly… And you’ll end up with what you should have from the start – a diversified portfolio of asset classes diversified within.

So again! Don’t listen to economist.

Don’t listen to the news.

Don’t be bullish.

Don’t be bearish.

Don’t trade on emotions.

Don’t sell anything just because it fell in price.

Don’t buy anything just because it fell in price.

Stick to your strategy!

Here’s a post on sticking to your strategy I wrote during the crash. It covers all possible scenarios, so maybe will make some investors sleep better at night.

Become an Investor is a great place to start for those that need a push in the right direction.

The value of money

Let me try to make sticking to your strategy much much easier.

First thing’s first, be prepared for any short-to-mid-term volatility. Don’t forget that this recovery was driven by rate cuts, removing reserve requirements, and something called quantitative easing which almost represents alchemy. The FED “printing money” that can be used for purchasing real, existing, valuable assets with. And when the supply increases and/or the demand decreases, it’s basic economic concepts that make us see what the result will be: the good loses value. Read more on supply and demand if you’re unfamiliar with how exactly it works.

In this case, the oversupplied good is the same thing many people get paid in. The same thing that people use to transact. The same thing many people put their full faith in as a reliable payment system and “risk-free” cash savings… Potentially set to lose significant value – and it’s a fact, not an opinion. Although I’m not foreseeing hyperinflation scenario in the near future, this is something that can’t sustain on the long run. Here’s the purchase power of 1$ from 1860 until today:

Source

If we’re a bit loose with definitions for the purpose of conveying a point, the following statement holds true:

FIAT is a ponzi scheme.

In essence as well – without an asset backing it, the whole financial system is based on a belief system similar to religion… Even with an asset backing it, it’s still as valuable as the people using the asset for trading think it is. And is also sensitive to supply shocks.

Remember, nothing has intrinsic value. Our collective perception is what gives value to “assets”. Think about it. Oil futures went negative, purely driven by supply and demand:

future-uncertain