Uncertainty is Certainly Something We Can Count On

Jill Green |

Uncertainty, Though Unnerving, is Certainly Something we can Count On

We’ve just entered spring and can see the grass starting to green and the trees budding.

Spring symbolizes renewal; new life as evidenced by the vegetation emerging from the ground. However, spring also offers some of the most uncertain weather; ranging from sunny days in the 70s, to cold and rainy days in the 40s and even a chance of snow.

The days are getting longer and warmer; however, it would be foolish, at least for those of us in the Midwest, to put away all our coats and jackets and rely on shorts, t-shirts and sandals going forward. Although, spring is a season we may love, it is also one of the most unpredictable.

The change of seasons and investing are not much different. Every day is filled with uncertainty. Uncertainty is why we carry umbrellas, have insurance, use seatbelts, have locks on our doors, and take various types of clothes on trips. Because we know that things are outside of our control, we must prepare for those uncertainties.

The same ideals can be related to investing. Seeing the stock market decline regarding uncertainty surrounding potential trade tariffs, interest rate increases, geopolitical concerns or a myriad of other reasons can be unnerving. In the long-run, having a sound financial plan can lead to financial success and security. Budgeting, having an emergency fund and adequately insuring yourself are all ways to help mitigate the impact of life’s uncertainties.

However, it is these same uncertainties that we often enjoy and financially benefit from. We often see our accounts increase due to companies reporting higher than expected earnings, announcing a stock buyback or even a technological breakthrough.

Financial uncertainty is something that cannot be avoided, unless one chooses to invest solely in guaranteed savings, CDs and annuities. Unfortunately, due to their low rate of return, the effects of inflation make investing solely in guarantees unrealistic.

Uncertainty can be best prepared for by navigating the following steps:

Step one is to have a financial plan and stick with it. Within this plan you may have many types of investments that fit into various buckets:

Second, your financial plan can be adjusted for significant life changes, such as having children, job change or layoff, unexpected financial or health setback, inheritance, retirement, etc.

Third and possibly the most important, avoid making changes in your financial plan due to temporary uncertainty. Temporary uncertainties such as hurricanes, earthquakes, wildfires, terrorist attacks, geopolitical problems, domestic political issues, market declines, etc. Constantly, the media via TV, radio and internet are all vying for your attention to garner higher ratings and advertising revenue. These outlets understand that we make most of our decisions based upon emotion. Their goal is to trigger an emotional response in you to either want what they are selling or reject what someone else is.

Some say you may be able to catch more flies with honey, but in the human world it seems that vinegar works much better. Negative news, scary headlines, doomsday predictions unfortunately carry much more weight with our emotional intelligence.

Without getting into a litany of statistics, the U.S. and global economies are continuing to do well, especially in comparison to prior years of this current bull market and economic expansion. As such, stock prices have increased substantially since their lows of March 2009. However, there was uncertainty last year, as in all years prior. We live with uncertainty, and the media will pounce on it and amplify it. When the stock market was on a tear until its recent setback, the media gushed about how the market would make you rich. Now that we’ve had some volatility and a more normal market environment, they like to make you think that it is financial Armageddon.

In each case, the media blew the situation out of proportion. I believe that is the case currently. The recent interest rate increase by the Federal Reserve, and threat of tariffs by the current administration could impact the economy and stock market. However, interest rates are still historically low, and a 30-year mortgage is still around 4.44%; the same place it was in December of 2015, and the world didn’t end then. Regarding the tariffs, it seems they want to use that threat as a negotiating tool. That being said; I am not fan of tariffs. Nevertheless, it is believed that some of our trading partners, especially China, have not played by the rules for years. As a result, countries around the world have not been getting a fair shake. This is specifically true of U.S. companies trying to sell their products in China. Not only do they have to deal with high tariffs, but they also assume the huge risk of their intellectual property being stolen and then repackaged under a Chinese company’s name. Piracy today, specifically technology piracy, is an issue that has proved difficult to address.

Yesterday the market had a tantrum regarding all the above. But does this temporary tantrum negate all the positive economic events taking place in the U.S. and globally…NO. All it does is create great attention-grabbing headlines, which can cause the market to gyrate daily. Market tantrums are very similar to child tantrums. They are both loud, emotional and temporary. However, in both cases, they most often end with a sense of tired calmness.

As I’ve stated in prior commentaries, 2017 was one of the most tranquil stock markets in history. 2018 has started out differently and much more normal. We’ve had more days when the stock market has fluctuated by over 1% thus far in 2018, than in all of 2017. Does this imply that storm clouds are on the horizon and we need to run for cover? Not necessarily. It just means that emotions and patience will be tested.

Remember, it is a fact that stocks are one of the best long-term investment vehicles for growth and income, which are vital to maintaining one’s lifestyle and offsetting the effects of inflation. Stock prices are certainly impacted by uncertainty in the short-term. However, the talks of tariffs, interest rates and other items will have zero impact on how many hamburgers McDonalds sells, how many cups of coffee Starbucks serves or how much furniture Nebraska Furniture Mart sells.

Success in life, especially as it relates to your finances, hinges on focusing on what is important and tuning out all the noise.

If you have questions or concerns, we are happy to address them. Our goal is to help you stay focused on what matters most to you, your health, family, etc. Being unnecessarily worried or concerned about recent market volatility can result in irrational and very unprofitable financial decisions in the short-term, and subsequently negatively impact you long-term.

In closing, the war of words regarding the trade tariffs reminds me of scene from A Christmas Story and the old Triple Dog Dare! Tensions escalate to a fever pitch, but in the end nothing serious comes from it, other than a those involved looking foolish.

New Verification Procedures for Your Security

Recent security regulations have resulted in new verification procedure for your protection. As such, when you request of any kind (withdrawal from and/or a deposit into) your account, we will need a verbal verification over the phone or in person. Unfortunately, fraud and identity theft are on the increase and security regulators are requiring financial institutions and advisors to take steps to address it. Your financial security is our priority, and as a result, we appreciate your patience and understanding of this new practice. Please note, anyone with existing automatic monthly deposits or withdrawals, currently in place, will not be impacted. The new practice only applies to new requests going forward. If you have any questions regarding this, please don’t hesitate to contact us. 

 

Tony Moeller, CPA

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any investment or strategy. A risk of loss is involved with investments in the stock and bond markets.

Photo by: Kirk Fisher via Pixabay