Turtle and rabbit – Endurance and stomach review for investment

I recently talked to a client and he called me a “Turtle,” which honestly brought me back. I have never considered myself slow and insecure and I would assume that 99% of those who work with me or know me will agree with me. As he and I continued talking, I had what Steven Covey (author of “7 Habits of Highly Effective People”) called “A-HA Moment” – a time when something confusing suddenly has clarity.

I’ve always explained my approach to investing as “flat investment,” which simply means that the goal is for the client’s money to grow steadily over time if their intentions grow, or for the principal to remain intact and if monthly interest flows, if their goal is income. On the opposite side of the equation is a stock market investment approach that aims to have extremely higher returns for those who have the stamina and stomach to drive. I don’t work in a world of stocks, bonds and mutual funds. I don’t have permission to do that. I’m not an anti-market – in fact, I have some of my own funds “on the market”. I work in a world of safe money products – whose main goal is security, and funds are never invested in any stocks or bonds.

New clients (prospects) often ask me for my opinion on what is the better approach in today’s difficult world of volatility and low interest rates. It is true that I cannot say with any degree of certainty. The truth is that no one can. It is a personal decision that every investor must make for himself. I have gained many clients over the years when markets are turbulent. I’d rather talk to prospects when markets are booming. My philosophy is that making decisions about the market or investing safely in turbulent times is not healthy – because those decisions often come out of fear, rather than confidence in the planning process. When markets are in turmoil, I hear radio waves full of “doomsday predictions” – it’s not an ethical way to market, but “ethics in marketing” is a discussion for another article.

One simple survey would show that the S&P 500 (a well-known measure of the performance of the general stock market) returned an average of 6.48% over a ten-year period (January 31, 2016). The results of costs related to market investment are not part of that number. Asset management costs (fees) are still a debate in financial circles, but even if we look at one of the lowest management costs in the industry – Vanguard – the ten-year performance of their S&P 500 index fund (VFINX) was 6.36%.

Our ten-year investment models, which use multiple safe money products, are on par with the numbers above. However, if you look at the returns of 3 and 5 years S&P 500 – they scored a few points more than our modeling. The challenge of looking at the past as an indicator of future performance is like a “dog hunting a tail”. The decision on market investment and safe investment rests more on the comfort of the individual (or institution) in “driving”. A very simplified example are the two tables below that illustrate that over the last 10 years the endpoints of investing in Cash Money (protected by equity) and investing in the market have been very similar.

One (Turtle) is driving with safe money – slow and stable – “Straight line” – nothing too fancy. The second market (rabbit) – much wilder ups and downs – bursts and falls.

Ultimately the decision on where to invest lies on the investor’s propensity for risk or aversion. There is no way to predict future trends – either in the market or in interest rate movements. I will continue to look for opportunities for my clients that provide major protection and competitive returns compared to other safe money products such as traditional bank and insurance company offerings.