We need a forward-looking value system to thrive
RANDS & SENSE:
By Andrew Bradley
A quick look around will remind us that life can change fast – as we are experiencing in this coronavirus era. Nothing lasts forever – hopefully, not even the virus. We certainly don’t, nor do businesses, leaders, movements or political parties. It is important to remember this in every aspect of life. We get into trouble when our solutions are designed for yesterday’s problems. We need to have a value system that is meaningful and looks to the future. Then we need to live our lives based on the future we desire.
This applies to our lives, the work we do, as well as how we deal with our money and investments. It is important to keep checking that all these aspects of our life are aligned. We must do the same with our assets, possessions and investments. To do this, figure out roughly what they’re worth, then ask yourself: if I had that money in my pocket right now, would I buy the same house, the same things or invest in the same investment portfolio that I own today?
Most of us don’t ask this question often enough.
We often do not ask this question because we hope things will not change, or we think that we cannot do anything about it. But that is not the case. Then, when change happens, we are stuck in situations that make it harder to deal with the new circumstances.
History is littered with examples of this. In the 1920s, it was thought that the world had entered a new era that would bring permanent prosperity. The stock market crash of 1929 burned many people so badly that they never invested in stocks again. A similar situation arose in the late 1960s, 1980s, 1990s, for the first years of this 21st century and then again in the global financial crisis of 2008. However, through every one of these periods the stock market has provided ample returns for those who regularly ask themselves that re-evaluating question.
An assessment of the local and global stock market performances over the past 70 years indicates that they have outperformed any other recognised investment alternative, over 10-year periods and longer. That includes outperforming inflation.
During the Great Depression decade of the 1930s, economists developed intricate theories of how the economy would never again boom. The decade after the Second World War II brought its own set of supposedly permanent problems. There was wide consensus that the world’s trading countries would never again sell enough to earn the income they needed. Years later, this has proved to be very short-sighted.
Only 25 years ago inflation was the problem that was here to stay. Oil prices were expected to rise exponentially with little effect on supply or demand. Those now extrapolating for a post-coronavirus era using the current world framework will be equally wrong. Just as it will bring challenges, so it will also bring opportunities.
Decisions that made investors money in the 1970s and 1980s could have bankrupted them in the 1990s if they had not re-evaluated their position. Likewise, decisions made one year, three years or five years ago may no longer be appropriate into the future.
If nothing else, the Covid-19 pandemic has taught us to keep learning, evaluating and looking forward. The world has changed and will keep changing at an ever-increasing rate. So keep asking the question: if I had the money in hand now that is tied up in … (fill in the blanks), would I invest it in exactly the same way? If not, you should be looking to reallocate those funds to where you believe your money should be.
Andrew Bradley is the chief executive of wealth management firm Fiscal Private Client Services.