Rhyme or Reason

Change can be disconcerting, and if there’s one thing we can probably all agree on, it’s that change has come to the investment markets this year. Familiar calm markets characterized by steady gains month after month have been replaced by markets that are jolted by violent moves up and down – sometimes within the same day. For all of 2017 there were eight days with moves of more than 1% up or down in the S&P 500 Index. During just the first quarter of 2018 there have been twenty-three. In 2018 there have been six days with moves of more than 2%, five down and one up; in 2017 there were none.

Gyrations in stock prices may not be a top of the mind concern for many people, given that a recent Gallup poll1 found that only 54% of Americans own any stocks – either directly or indirectly. Still, if you’re reading this, it’s probably safe to assume that the prospects for investment returns are important to you.

As investment managers, we are often asked our opinion about what the future holds for the economy and investments. While that’s the question we’re asked, we suspect what people really want to know is what the future holds for them, and for their plans to meet their important financial needs and goals.

Some goals require the accumulation of capital, some require a reliable supply of current income, and many require a measure of both. For some goals, the important time frame is right now. There’s a large expense looming – perhaps the purchase of a home, or the start of college education expenses. Some goals may be 5 to 10 years down the road, and some may still be decades away. Some will require lump sum outlays, and some – like retirement – may involve outflows that stretch over 20 years or more. (According to the U.S. Department of Health and Human Services, the average life expectancy at age 65 is 20.6 years for females and 18.0 years for males.2)

As much as we would like to believe otherwise, none of us know exactly how the future will unfold – although we all may have our predictions, forecasts, estimates, and guesses. After all, we still have to make our plans based on something. But as Mark Twain once quipped, “The future doesn’t repeat itself. At best, it rhymes.” Still if you’re trying to plan for your future, you may want to consider what the past has to tell you.

We understand that history can’t give us a precise timetable about what’s going to happen, or when. We do believe, however that the lessons of history can teach us about what can happen, and how we should think about the kinds of decisions we are making about our actions today.

Let’s listen in on what history is whispering to investors with varying needs and time horizons about the economy, the stock market, and bonds.