By Rick Waechter, Founder

At least a few of our clients have asked a question which can be paraphrased as follows:

“The world is crazy, but the stock market doesn’t seem to notice. Isn’t it foolish to keep my money in the stock market?”

Plenty of commentators are asking a similar question.

Our suggestion is to acknowledge these real uncertainties but to ask a different question:

“Are today’s economic and political risks really that different than in the past, and what does the past teach an investor about facing the unknown?”

Of course, the first question attracts a lot more clicks or attention than the second question. That’s why the first question is the one proposed by any financial type looking to sell you a product. Too often, the reaction to the first question is to buy a product promising safety or which is marketed as the “new way” to grow wealth more reliably. Examples include variable annuities, precious metals (gold, silver, etc.), cryptocurrencies, hedge funds, structured products with caps on your downside, niche investments like art, etc., etc., etc.

I don’t want to belittle anyone who is worried about our economic or political environment. I am worried. (Full disclosure: I am always worried.) But before you make changes you may regret, ask yourself three questions:

1. Is the risk I perceive greater than what we have faced in the past, yet which we overcame? The Great Depression. Two world wars, plus a series of more limited but long, wrenching wars. The great financial crisis. COVID (which followed, by about a century, a similar pandemic). The cold war and real threat of nuclear war. Tremendous unrest in the late 1960s. You get the idea. Yet as a country and an economy, we overcame them all, and investors prospered. Sometimes the stock market declined briefly. Occasionally the downturn lasted for years. But it always recovered.
2. Does making a change to the way I invest eliminate risk, or simply create different risk? One example: you could keep all your money in cash, but that simply creates a new risk, e.g. running out of money. Another example: gold did wonderfully for a few years around the great financial crisis. Then it fell for a decade.
3. If a change is good only for my emotional wellbeing, and not for my financial wellbeing, could I make non-financial changes instead? Examples include checking your accounts less frequently or watching the news less regularly.

One of my favorite books is Thinking, Fast and Slow, by Daniel Kahneman, a Nobel laureate, which I summarized in a series of blogs, including here. The key concept: for any complex decisions, you should fight the urge to act fast (the fight or flight response) and instead think carefully and slowly. You’ll keep yourself on the right track.