Preparing for (Any) Battle
Greetings!
Hope you’ve all had a great weekend. Each week, I will highlight one central idea for you to think through on your own. The goal, as always, is to break down the complex and make it as digestible as possible.
This Week: Preparing for (Any) Battle
“We spend our lives fighting the last battle, rather than preparing for the next.”
- John Nagl, retired U.S. Army officer
One of the major privileges of my life has been the amount of time I have been granted to sit down and read books. I began my career as an English teacher, I spent my summers in English graduate programs, and once I pivoted to finance, you know, because we can now allocate funds in about 5 minutes, I continued to have ample time to sit down and read. I am even more grateful that I have always wanted to read as much as I can and think more deeply about, well, just about anything and everything, especially as it pertains to our money and our investments.
I stumbled upon Nagl’s quote last year and haven’t been able to get it out of my mind. Particularly, I am intrigued by how many of us are consistently “fighting the last battle” (or financial crisis), by adjusting our portfolios to protect us from the problems of the past. We become overly influenced by recent events, and we believe that by adjusting our asset allocation strategies retroactively to address that problem, we will certainly be in better shape to protect ourselves from the next problem. Well, unfortunately, if history truly does repeat itself…then we know that history won’t repeat itself. Our next battle will be one for which we are not necessarily prepared.
Action Item: My call to action for all of you this week is to never lose sight of the possibility that your portfolio and investments will be tested repeatedly, and the opponent will never be as familiar as we might like. The only “bullet proof” truth we know at this point is that seeking asset classes that are non-correlated, negatively correlated, or at the very least, not entirely positively correlated, with one another gives us the best chance to sustain our investments on the downturn without ever being completely wiped out.
This week, take a look at your investments, and make sure that you have not overly corrected your strategies simply to “beat” the conditions of 2022. As in, if you got out of bond funds because they didn’t serve us as well as we would have liked during a major market correction, might be worth remembering that those same bond funds are now responding quite nicely to the lowering interest rates and will become even more valuable as/if inflation continues to cool. Or, if you have sought shelter in “Fortress North America” through domestic index funds, might be worth remembering that during the “Lost Decade” (2000-2010), had you been invested in even a small component of emerging markets (China, India, etc.), your portfolio would have had a far healthier return vs. the zero return of the major US market indices.
In summary, avoid overcorrecting to fight the last battle, and keep a long term plan in place that you believe will be at least competitive in any battle.
Have a great week,
Tyler
