At any given time, there is something in your portfolio outperforming expectations and something else that is underperforming. That is the way of investments. So, let’s talk about parts versus wholes.
Humans engage in what behavioral psychologists refer to as heuristics to cope with information overload. Heuristics are mental shortcuts that can help us in problem-solving for quick decisions.
In many ways, heuristic thinking is very helpful. But as investors, we could overreact to agitating news and overlook the less obvious evidence on how to create financial stability.
Consider your quarterly reports in this context. In terms of fruitful investing, 2021 markets offered a bumper crop of seemingly easy pickings. Crediting “a highly speculative, risk-complacent market driven by a combination of near-zero interest rates, abundant capital, and a healthy dose of hype,” Financial Post columnist Tom Bradley summarized the year as follows: “We’re at a point in the business cycle when the disc jockey is playing Shout by the Isley Brothers and investors can’t stop dancing.”
The Wall Street Journal noted that low rates and busy investors “helped the S&P 500 close at a record 70 times this year, more than one-quarter of all trading days, and pushed the index up 27% in 2021.”
- Morningstar reported that 2021 was also a banner year for companies going public, driven largely by SPACs going public at “more than five times the number from the year before.”
- Traditional and thematic ETF launches were popular as well. Morningstar reported: “As of Nov. 24, a record 406 new exchange-traded funds were launched in 2021. The top 100 are the Swiss Army knives of the ETF world.” They went on to remark that “There were plenty of suspect newcomers in the crowd in 2021. A common thread among many of them is that they prey on investors’ impulse to chase what’s hot.”
- From options trading to IPOs, to tech stock bets, one aggressively active investment company president declared 2021 as “the year of the risk asset.” He said, “Anywhere there was risk and an opportunity for larger returns, we saw that pay off in spades.”
On the flip side, there’s been a lot of attention paid to the unknown. Will inflation rage in 2022? What if the Federal Reserve fulfills its promise to wind down the economic stimulus programs and aggressively raises interest rates instead? Will higher taxes happen? If so, how will they impact your financial, retirement, and estate transfer plans? What about coronavirus? Climate change? China?
If you’re just looking at the parts, good and bad news alike seems equally difficult to process. You know that each piece contributes to your overall plans, but how?
That’s where we come in. We’re here to help you discover the expansive planning space found between the extremes of good and bad news.
If you’re unfamiliar with our methods, we will work with you to create a sound financial plan and investment strategy tailored to your life’s goals, timeline, tastes, and aversions. We use an evidence-based strategy to create a globally diversified investment portfolio, with an eye on risk and reward. Once in place, we will review your plan regularly to incorporate life, goal, or market changes.
Erickson Braund is the Founder and Chief Financial Officer at Black Walnut Wealth Management. He is a Certified Financial Planner®️ professional and a Chartered Retirement Planning Counselor®️. Eric brings over 20 years of experience working with high net-worth individuals and families, helping them achieve their goals of protecting and growing their wealth for retirement and for generations to come. Because Eric is a CFP®️ professional, he adheres to high ethical standards and engages in at least 30 hours of approved continuing education in the financial industry each year.
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