It is with sadness, anger, anxiety, and hope that I share with you today.
Every day it’s something new. Lately, more often than not, it has been something awful. It seems our daily life could not become more difficult and yet it does. The COVID-19 pandemic has been the catalyst for a global sea change. This change has registered across the entire economic spectrum, and it has also impacted the physical and mental wellbeing of all of us. We have witnessed illness, fear, cowardice, bullying, bravery, generosity, and sacrifice. We have seen it all.
As of today, the COVID-19 pandemic has claimed the lives of over 110,000 Americans, and the resulting economic crisis has claimed the jobs of over 40 million Americans.
Then, in the midst of these already devastating linked health and economic crises, it got worse. Yet another horrifying incident of racism and police malfeasance went viral on Memorial Day. You didn’t need to look hard at all to be confronted with the devastating images of Minneapolis police officers callously extinguishing the life of a defenseless, handcuffed man, who can plainly be heard pleading, “I can’t breathe.” Some officers knelt with all of their weight and force on the man who could not breathe, while some of their brother officers looked on impassively and did nothing to stop it.
George Floyd, who could not breathe, had COVID-19, his autopsy confirmed.
What America and the world witnessed in the death of Mr. Floyd was a broken system in action. Here, again, we were forced to confront the heinous realities of the double standards at play when it comes to racism, police brutality, and lack of accountability by those sworn to protect us. There was no legitimate law enforcement justification for what those police officers did to Mr. Floyd. None. A few bad cops, doing the unspeakable, captured on videos that went viral, led to protests, rioting, looting, significant property damage, and more death, in over 75 cities in America. Now, a few weeks on, it seems that while large protests calling for change continue, the majority of the rioting and looting have ceased.
In my heart, I had wanted to keep telling myself that America in 2020 was different from the America of my youth. If you had asked me even a month ago, as we were dealing with the pandemic, I probably would have expressed a belief that every person in our country was woven into the American fabric. I am aware of America’s long history of mistreatment of Native Americans, Blacks, Hispanics, Asians, Jews, members of the LGBT community, to name just a few. Perhaps I had hoped that we had made more progress than we apparently have. It’s hard to judge.
Some commentators have expressed a belief that there has been an apparent uptick in instances of police brutality in general, but against minorities in particular, since 2010. Something I have heard noted in response to that idea really got to me: 2010 was the year that iPhones and other smartphones with video recording capabilities first became ubiquitous among the American population. So, it seems to me that the simpler explanation is not that there has been a dramatic increase in these sorts of awful events, but rather that now it is just a lot more likely that a bystander or the subject himself will be recording as it is occurring.
These events of the past several weeks have been a rude awakening. The death of Mr. Floyd has smacked me right across the face and has me asking: Who are we? Why can’t we, once and for all, move beyond the worst aspects of America’s history?
America is both a good and great nation—I believe the greatest nation to ever exist. It is partly because we are so great that I believe we have an obligation to do so much better.
“It takes each of us to make a difference for all of us”
I think that the American Dream is real. I think that I, and so many of my clients, are living proof of it. But it is crystal clear that not everyone in our country agrees. When will all citizens in America feel like the American Dream is alive and well and accessible to them? When will all Americans truly believe that the color of their skin will not affect their chances of getting a fair shake? When will all Americans believe that equal justice under law means the same thing for every citizen—no matter what color their skin is, or whether they’re rich or poor, educated or not? These are not easy questions.
For my part, I’ve spent hours soul searching, praying, meditating, reading, writing and reaching out. In my life, I’ve always attempted to grow, to learn and expand my understandings of the world around me, to be the best man I can become. I know that all of my personal change comes from the inside out.
During the past two weeks, I’ve had many conversations with my spiritual mentors. I’ve acknowledged my human imperfections. I’ve revisited writings from Dr. Martin Luther King, Harold Kushner and St. Pope John Paul II. I’ve had thoughtful and in-depth conversations with members of every living generation. I’ve listened to a couple podcasts and watched a number of YouTube Videos.
Where do we go from here? I don’t know.
No one has all the right answers and no one has a crystal ball. I’m not holding my breath waiting for our politicians in Washington to lead the way. I think change will occur from the ground up. I think that it takes each of us to make a difference for all of us. I will continue praying for my country, for every single citizen of it. I will continue reading and listening and learning, and do my best to be of service to those in need.
For my part, my personal focus and our firm’s focus will continue to be on asking the right questions. There is no question that we are living through difficult times—historically difficult times for many. Things are changing, perhaps more slowly than some would like, and, I fear, perhaps too fast for the tastes of others. As we move forward, I pledge that we will listen and clarify and revisit our “expectations conversation” with all of our advisory clients so that you can continue to focus on your unique lifetime goals and objectives. If changes or modifications are required to your financial plan or investment allocation, we will communicate that to you so your engagement with our financial consulting practice is as unique as you are.
Waking from the Slumber
Today, nearly 95% of the U.S. economy as measured by GDP is in the process of reopening from the COVID-19 shutdown. I believe better times are ahead as the economy wakes from its governmentally forced slumber.
Trevor and I have been asked a number of similar questions during our conversations with our clients over the past few months. I would like to address some of them with you.
Is an economic depression possible? It is absolutely possible, yet we doubt it is likely. The main reason is that COVID-19 is proving to be less lethal than originally believed. The Federal Reserve is using unprecedented fiscal stimulus and central bank liquidity to help navigate us through the recession we are currently in. States are now gradually reopening, and we believe a coronavirus vaccine will be here sooner than most expect.
Can there be another 50% market decline? At some point in the future, given a long enough timeline, there will almost certainly be another 50% market decline. Such declines have happened before. Since December 31, 1999, we have had two market declines of 50% or more. In a mere 33 days, from February 19, 2020, to March 23, 2020, the U.S. stock market gave up 34.8%. During this period, we went from the lowest unemployment rate in modern history to the highest since the Great Depression. Right now, the financial markets are betting that the Federal Reserve and science will solve the COVID-19 crisis. U.S. stocks are basically flat as of June 10th, as measured by the S&P 500 Index, now showing a total return of -1.26% year-to-date.
What’s the chance of a rally and what return expectations should we have? The chance of a rally is actually 100%. We’re already in the midst of an historic rally, as stocks across the board are up more than 40% from the pandemic lows as of June 10th. Technically, we are in a full-fledged bull market. I can’t tell you how many pundits we have heard say this bull market run would not or could not happen until the pandemic was behind us, but the stock market is forward looking. It appears that on March 23, 2020, the market had priced in worse news than what actually happened, or at least has happened so far.
Economists were blindsided last week when the economy added 2.5 million jobs instead of losing a forecasted 8.3 million, and good times seem to be returning. In fact, they may be returning faster than anyone could have predicted. The faster we get back to pre-COVID-19 activity levels, the faster corporate earnings will recover, and right now the financial markets are looking out to late this year and early next year with optimism.
What if I want to take everything out of the stock market for at least six months or until after the next big correction? Market timing requires you to be right not once, but twice. John Bogle, the founder and CEO of The Vanguard Group once stated, “You must be right twice. So, if you get out now, and the market goes way down another 15 or 20%, many investors will be so scared they won’t get back in.”
Over the years we have witnessed this human behavior multiple times. In each instance, once a client moves to cash, they miss the big bounce when the markets finally begin to recover. Please remember that day to day fluctuations are a necessary part of the financial markets.
Our message to you. No one knows the future. Investing has been and will always be risky to some degree. Rebalancing works well. Those of you that have worked with us for a long time understand our goal is to help you take risk “off the table” once you have “won the game” and have enough money to fund your lifestyle. To do this well requires you to be honest with yourself and with us so that we can help you properly identify and quantify what enough money is for your own unique situation.
During the COVID-19 crisis, we have continued to evaluate each allocation strategy in place for all of our advisory clients. We have also acquired new tools to help us revisit what “risk” means to you. In the coming months, we will be having conversations with all of our advisory clients to make sure the investment allocation that is currently in place for your portfolios is still your best allocation to help you meet your long-term objectives.
The Secret of Wealth and a Happy Life
To a great extent, the difference between handling money right and wrong determines our happiness, well-being and quality of life.
The need for all people to be able to sustain themselves for at least a few months on savings is accentuated during a time of crisis. This means planning ahead when times are good. It is not only low-and-middle income earners who blow through their paychecks every month. Many high-income earners also live above their means.
Early in the COVID-19 crises, I was reminded how different our clients are from most American families. Plenty of news reports shared the stat that 40% of American households had savings of $1,000 or less. Think of that. In 2019, there were 128.58 million households in the United States, and 40% only had savings of less than a grand! That’s something on the order of 51million households. Think about the children growing up in those households; those children did not choose desolation; it was chosen for them. In my mind, this is an absolute shame, and it speaks loudly to much of the unrest we have witnessed recently.
And as to the people who are on the opposite end of that spectrum: people who are doing well tend to be doing well for good reason. According to the Financial Health Network, people who handle money well have eight habits in common:
- They spend less than they earn.
- They have manageable debt.
- They pay their bills on time, avoiding interest charges, late fees and reconnection costs.
- As a result, they have a higher credit score, lowering their cost of borrowing.
- They have enough savings to meet an unexpected financial emergency.
- They have appropriate insurance, so a sudden setback does not derail their investment program.
- They invest to meet long-term goals.
- Which means they actually have long-term investment goals.
Consider that last habit: goals. Goals are dreams with deadlines. They are specific and they have a date attached. “I want to have a $5 million net worth by my 60th birthday” is a goal. “I want to be rich” is just a wish.
The formula to reach such a goal is straightforward. Earn as much as you can. Save as much as you can. Invest as much as you can. And leave it alone, letting it compound day by day, week by week, month by month, year by year until you have reached your goal. And then what do you do? You celebrate the accomplishment of your goal and stay focused on the next one.
In our work as Certified Financial Planner™ practitioners, Trevor and I coach our clients to make lifestyle adjustments as far as spending and saving are required. Living rich and building wealth does not require scrimping. You only need to be smart about spending.
Over the years, we have found some of our clients not getting rich because they are too busy trying to look and act rich. They purchase luxury cars, designer clothes and expensive jewelry and enjoy fine dining and nice bottles of wine that most wealthy individuals could happily live without and often do.
If you want to get rich sooner, the formula is easy. Give up some of your minor extravagances, save regularly, invest wisely and fight the temptation to spend down your net worth before it has a chance to snowball. That is the most effective way to financial independence and to live a smart and happy life.
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Securities and some investment advisory services are offered through Cetera Advisor Networks LLC, member FINRA/SIPC, a broker/dealer and Registered Investment Adviser.
Financial Planning and some investment advisory services are offered through CTA Wealth Advisors, Inc., a Registered Investment Adviser.
CTA Wealth Advisors, Inc. and Cetera Advisor Networks LLC are non-affiliated companies.
The opinions expressed in this letter are those of Cameron M. Thornton, CFP®. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Past performance does not guarantee results.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
Dow Jones Industrial Average Index: The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the NASDAQ.
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Cameron M. Thornton, CFP® is a Representative with Cetera Advisor Networks LLC and may be reached at firstname.lastname@example.org or (818) 841-1746.
1. The Oxford Club. May 29, 2020
2. Michael Cunningham. Week 34. Angst
3. Inner Strength Foundation. June 6, 2020 Newsletter
4. Fr. Richard Sunwoo, USC Caruso Catholic Center. June 4, 2020
5. Holy Cross Province Provincial Superior. June 1, 2020 reflection
6. Michael Pollock, CEO, DBSA. June 1, 2020 reflection
7. Blackstone Group. June 2020 Essay by Joe Zidle. May 26, 2020
8. The Question Every Advisor Must Answer. Allan Roth. June 8, 2020
9. Cetera Daily Market Briefing. June 11, 2020
11. Alexander Green. Liberty Through Wealth. June 5, 2020