Recently I was talking with a client and he referred to me as a "Tortoise," which honestly, I was taken back by. I never thought of myself as slow and lackadaisical, and I would imagine that 99% of those that work with me or know me would agree with me. As he and I continued to talk, I had what Steven Covey (author of "7 Habits of Highly Effective People") called an "A-HA Moment" – the time in which something confusing suddenly has clarity.
I have always explained my approach to investing as "Straight Line Investing," simply meaning that the objective is to have a client's money growing steadily over time, if their intentions are growth, or keeping principal intact and monthly interest flowing, if their objective is income. On the opposite side of the equation is the approach of stock market investing which aims to have ultimately higher returns for those that have the stamina and stomach for the ride. I do not practice in the world of stocks, bonds, and mutual funds. I am not licensed to do so. I am not anti-market – in fact, I have some of my own funds "in the market". I work in the world of Safe Money Products – ones where principal safety is the main objective, and funds are never invested into any equity or bond positions.
I am often asked by new clients (prospects) about my opinion on what is the better approach in today's difficult world of volatility and low interest rates. The truth is, I cannot say with any degree of certainty. The truth is no one can. It's a personal decision that each investor needs to make for themselves. I have gained many clients over the years when markets are turbulent. I would rather have discussions with prospects when the markets are booming. My philosophy is that making decisions about market or safe investing during turbulent times is not healthy – since many times those decisions come from fear instead of confidence in the planning process. When the markets are in turmoil I hear the radio waves full of "doomsday predictions" – that is not an ethical way to market but "ethics in marketing" is a discussion for another article.
Some simple research would show that the S&P 500 Index (a well-known benchmark on how the general stock market is performing) returned an average of 6.48% over a ten-year period (as of 1/31/16). The results of expenses related to investing in the market are not part of that number. Expenses in asset management (fees) continue to be a debate in the financial circles, but even if we look at one of the lowest management costs in the industry – Vanguard – the 10-year performance of their S&P 500 Index Fund (VFINX) was 6.36%.
Our 10 year investment models, which utilize multiple safe money products, are right on par with the numbers above. However, if you look at 3 and 5-year S&P 500 returns – they have performed several points higher than our modeling. The challenge with looking at the past as an indication of future performance is like a "dog chasing its tail." The decision of market investing vs. safe investing rests more in the individual's (or institutions) comfort in "the ride". A very simplistic example is the two charts, below, which illustrate that over the last 10 years, the ending points of both Safe Money (principal protected) investing and Market investing are very similar.
One (the Tortoise) is the Safe Money ride – slow and steady – "Straight Line" – nothing too fancy. The second is the Market (the Hare) – a much wilder ride of ups and downs – bursts and setbacks.
In the end the decision on where to invest lies with the investors propensity to risk or risk aversion. There is no way to predict future trends – either in the market or in the interest rate movements. I will continue to look for opportunities for my clients that provide principal protection and competitive returns as compared to other safe money products such as traditional banking and insurance company offerings.