The last few weeks I’ve met with clients and prospective clients who are very afraid of where our country is headed due to the climbing Federal deficit, the fall in interest rates, and the decline of the dollar vs. other currencies. Some have purchased gold or silver as a hedge against the anticipated fall of US stocks. I understand their concerns, and they are not unfounded.
One of the benefits of getting older is the perspective it provides, especially when it comes to investing and people. (Others might say I’m just getting crotchety, but I digress.) Looking back over the last 23 years, I‘ve heard “This time is different” a few times before.
In 1988, when I started The Asset Advisory Group, people were shell-shocked from Black Monday: October 19, 1987, when they saw the Dow Jones Industrial average fall over 22% in one day. As I worked with worried people to adjust their financial plans for retirement, they told me things would never be the same, because investors would not put their money in the stock market again and it would stay depressed as a result. “This time was different.” Those who invested in bonds and CDs based on their feelings missed the Dow’s climb from 1,739 on October 1987 to 3,975 on February 1994 – a 129% increase over less than seven years.
The fall of 1999 I spent talking with investors who were upset with our philosophy of portfolio diversification. After nearly four years of watching every dot.com provide high double digit returns, they were tired of being diversified in value stocks, real estate, and small US companies. Technology stocks were making a killing, and investing in any other type of company seemed foolish. Emotions in some meetings ran high, because people felt I was keeping them from making the returns their friends and neighbors were telling them about. I would be a rich woman if I had a dollar for every person who told me we were “in a new paradigm of investing”, or “This time is different.” The tech bubble burst in 2000, and it was real estate and small cap value stocks that kept our clients’ portfolios positive in 2000 and 2001.
In 2008 people were shaken again when we experienced a global stock meltdown that was touched off by the credit crisis in August 2007. The bad news dragged on through March of 2009, and comparisons to the Great Depression were made daily. “This time was different.” People were scared, angry and some wanted to move all their investments to cash and get back in when they felt better about the market. I felt a great sense failure when I could not convince one of my long-time clients not to sell out. But clients that kept the faith in the long-term resiliency of the global markets allowed us to rebalance their portfolios – we sold out of bonds and bought into stocks at depressed prices. These investors were rewarded with significant gains as the equity markets roared back in 2009 and 2010, and they recovered their portfolio highs of 2007.
Now investors are afraid of our country’s budget deficit and the status of our currency; gold and silver are being sold as the investor’s solution. “This time is different. “
I agree we have tough decisions to make in this country to get us back on track, but I don’t believe we need to hoard precious metals to protect us. We need to have a personal financial plan in place and execute it with conviction, so no matter what we experience we can survive it successfully. Each financial crisis we experience will be somewhat different, and even though history doesn’t repeat itself, it sure does rhyme. Take it from a crotchety old investor.