Past Predictions & Future Performance

Country music artists are known for telling a story. Let’s have a little fun and go with us as we talk about the market.

“If you make the mistake of looking back too much, you aren’t focused enough on the road in front of you.” – Brad Paisley

Interestingly enough, Brad Paisley is married to my wife’s doppelganger…or so she’s been told.

His quote is one that can be likened to my outlook on the market.

Every prospectus of every mutual fund in the world reads, “Past Performance is no guarantee of Future Performance.” One of the things I have been thinking about lately is how hard it is to shift the mindset of investing. Instead of relying on hindsight as a guide for future action, we could stand to look a bit more to the future to predict what is to come.

Repeatedly, advisors and clients look to how markets have done in the past to guide our actions moving forward and it often leads to poor decision-making or skewed views of risk. Morningstar ratings and past performance have very little predictive value when it comes to how a mutual fund will perform in the future.

Does past market performance tell us that robots are taking over jobs that previously could only be done by humans? Or does it tell us that new tariffs will dramatically affect international trade? Nope.

A couple of letters ago I talked about the problem with Bonds. I explained how far yields have fallen (which means prices have risen). Over the last 40 years or so, bond returns were around 5-6% depending on the specific bond. If I create a Financial Plan for you by running income projections based on the last 30 years of real market data, your portfolio is not going to show a depletion of funds because bonds have performed reasonably well the past 30 years, but that doesn’t reflect our current reality.

Right now, the expected return of 2-, 10- and 30-year treasury bonds is 1.5% – 2.0%. If you have a portfolio made up heavily of these bonds, there is no way that the historically based income projection is correct. Your return in bonds by looking forward is not going to be 5-6% as one would predict from past performance. It’s just not reasonable, or realistic, to base expectations and assumptions on what happened over the last 40 years.

Looking forward, we need to consider how people conduct their day-to-day in life and business. Seismic transformations are occurring here and trying to predict what the future will look like is not an easy task. Young kids will come into my office with their parents from time to time to meet me and begin planning for their futures. Were one of them to tell me that they wanted to be a long-haul truck driver someday, it would certainly not be a career path I would recommend (though for disclosure sake, there is actually a shortage of 2 drivers now). Drones and driverless cars are likely coming to take over those jobs as hey have with manufacturing. The jobs of the future for our kids and grandkids are not the same as today. It’s important to look forward and recognize things that are changing so that you can create a plan with flexibility.

Please don’t mistake this letter for a claim that I have a crystal ball. I don’t. The market has and always will rise and fall, have crashes and spikes. It will react in ways we could not have foreseen. However, investing has and will continue to be the best long-term creator of wealth.

“The way I see it, if you want the rainbow, you gotta put up with the rain” – Dolly Parton

She’s right you know. Most things work out like that. It’s impossible to play out every scenario, but for your retirement planning, I encourage you to consider what some of that “rain” may be. Take some time to sit down and pose some really hard ‘what- if’ questions as it pertains to you personally.

What if one of us is diagnosed with Alzheimer’s? What if Mom gets sick and needs care? What if one of us dies before we are eligible to retire? What if one of us wants to retire and the other one isn’t ready yet? What if we hate retirement? What if we end up caring for grandkids? What if RVing isn’t all it’s cracked up to be? What if we end up living longer than expected?

These are all things I have seen among our Monson Wealth Management family of clients. And most of them, while not pleasant to think about, are important to consider when thinking about your contingency plans. Plans need to be flexible and adaptable.

In summary…

“Be informed by the past. Learn from it, but don’t expect the future to be the same. The future is ours to make it what we want it to be. While we can’t control events, we can control our reaction and how we live our lives. Let’s make our futures bright and happy while thoughtfully considering the unexpected life events that will inevitably come our way.” – Eldon Monson

While I’m not a country singer most of you know…I did sing “Keeper of the Stars” to my wife at our wedding reception 24 years ago this month. So there’s that. And no…I won’t be singing at any future client events.

Monson Wealth Management Flat-Fee Program

Most Registered Investment Advisors charge a percentage of assets under management, which translates into the more money you have, the more you are charged, even though the servicing time may be the same as someone who has one-quarter of what you do.
Our Flat-Fee program is designed with these clients in mind. We don’t charge you more just because you have more.

Give us a call and in 15 minutes we can assess your situation to see if this makes sense for you.

“The MWM Flat-Fee Program is designed to give clients that have over $500k invested a fair shake.”

Eldon Monson CFP®, RICP®
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Live Life On Your Terms

Whether you want to travel more, do things you’ve always wanted to do, or just spend more time with the grandkids, we want to be your guide to help you get there.

Live Life On Your Terms

Whether you want to travel more, do things you’ve always wanted to do, or just spend more time with the grandkids, we want to be your guide to help you get there.