Tailwinds of Progress, 1871 to 2022

Overview

When in doubt, zoom out! Let’s zoom out to the last 150 years or so of stock market performance!

In times of crisis, it is often tempting to bet against the market by going to cash. Unless you are going to cash to fund spending, match your risk tolerance, or to follow a preset algorithm, it is best to just stay the course. When you see bad economic news or returns you should remember that the majority of the market is seeing it or too. You wouldn’t walk onto a NFL football field and try to outplay professionals. Don’t try to outplay the market based on news or short-term returns. If you don’t need money for many years then invest it. It is that simple!

Again, there are definitely times it makes sense to reduce stock holdings – such as to fund spending, rebalance a portfolio, or to follow an algorithm. But all investors and strategies should take into account the massive tailwind they are giving up anytime they decide to reduce their stock exposure. Of course, the same concept applies to any appreciating asset such as bonds, gold, real-estate, or dare I say cryptocurrency.

Why Has It Grown So Much?

The most significant reason for the growth in stocks is that businesses are always working to become more efficient, open new markets, grow, and increase profits. It is easy to be pessimistic and think business won’t progress forward. Few people could have predicted how railroads, oil companies, cars, planes, telephones, smartphones, the internet, green energy, or a thousand other things would grow the economy. We don’t know how things will change, but we know people and businesses are always trying to push things forward. With enough time they likely will. Statistically there is a high probability that owning large numbers of business will be one of the best investments you can make over the next 10 to 20 years. So keep calm and carry on!

If You Don’t Have Time

For any number of reasons you may not have enough time to wait for the tailwind of business to push you forward. When that happens it can often feel like the best thing to do is get more aggressive. Unfortunately, the best thing to do when you don’t have time is to accept a lower rate of return with more stability. There are many different ways to go about doing this, but one way is through purchasing government bonds. The 10 year US treasury bond is one of the oldest types of US government debt. If we graph it we can see how it is much more stable at the expense of lower growth.

Blended Returns

Say half your money can be left alone for 10+ years and half needs to be spent within 10 years. This is a great example of a simple 50/50 portfolio and how well it did historically.

Bottom Line

If you don’t have some spending need or some algorithm based on a large dataset, don’t mess with trying to time the market based on news or fear. Tines Capital does market timing within our active algorithms, but we highly encourage investors to trust the data and not try to time the market or our algorithms which are already using data to do so. We encourage patience and consistency!

Nerdy DETAILS

If you want to geek out click through the images below and read the captions. If you do I am sure you will see why it is best to just go with the flow of the market the vast majority of the time.

The data in this post was pulled from these publicly available sources then combined to get the necessary charts.