May you live in interesting times.
I open with a well known Chinese curse (with dubious authenticity).
Who wouldn’t want to live in interesting times, why is that a curse?
Well, uninteresting means things are going pretty well.
Just like wishing someone uneventful travels. You don’t want a flight or long car drive to be eventful – boring and safe is perfectly fine.
Whether you like it or not, we live in interesting times!
The Ebbs and Flows of Politics
Each person has their own beliefs, but there are trends that can be tracked over the years.
I’m not talking one party’s beliefs. A much bigger trend.
Isolationism vs. Interventionism
The United States rose out of a hatred of imperialism and a desire to govern ourselves. That way of thinking was applied to others for the next hundred years: don’t get involved in other countries’ fights. The French Revolution, Napoleonic Wars, Crimean War, and several wars with Prussia / Russia / Ottoman Empire. Maybe we cared who won, but we weren’t about to get involved.
Then at some point in the 19th century the United States decided to be a big important country, we had to have a bit of an empire.
Cuba, Puerto Rico, Hawaii, the Philippines, Guam, Samoa, the Panama Canal – we started collecting territories and defending our empire by war (the Spanish-American War and Philippine-American War).
After the First World War, the United States shifted back towards isolationism. Soldiers’ families were left with few answers to what happened to their loved ones if they did not return from the war, making it unbearable. We are lucky that now websites such as Genealogy Bank exist so that they can be tracked down by distant relatives, however, it doesn’t take away the pain of losing them during this time. We did not join the League of Nations with their requirement to defend other nations. We took things further with tariffs on trade to bring the focus back home. We tightened the borders.
We stayed out of World War II until attacked. December 7, 1941 marked a new shift towards interventionism – the United Nations, rebuilding Europe, fighting communism across the world.
Then came 2016. The Brexit and Donald Trump. Did we just witness the start of another multi-decade trend? Or is this just a 4 year policy?
[A couple sources and further reading for all that]
What is the Impact?
No one knows. And that is a little frightening.
Whether or not you agree with the new policy, we can all agree things would be much easier to predict if we kept going with the same old policy. We know more or less what that route brings us.
Predictions are often wrong though. You can’t count on knowing the future, sometimes you just have to react to what happens.
What About Money and Real Estate?
Flexibility is key. Months of living expenses saved, the ability to adjust strategies as things change.
If prices keep going up, awesome. I’ll refinance and double down.
If prices crash, that’s fine too. I always appreciate a good sale and will take advantage of my flexibility to buy at low prices.
Politics aside, how do you think about what to do with your money in the face of uncertainty?
Since I have a long term investment time frame I get excited when the market goes down. Picking up cheaper shares/properties is definitely in my interest and I’m perfectly fine with volatility. I have my elephant gun ready 🙂
As long as you can avoid looking at your 401k statements or investing account balance!
Do you try to sit on some cash at times like this to be ready for investing on a dip/crash?
I started to diversify and hold more cash in my portfolio starting in August 2014. I last deployed some cash in February when I thought energy stocks looked good and the S&P 500.
I did that because I was reading on average that we go into a bear market every 5.5 years and on average the market drops by 10% every 11 months.
I thought maybe I should test out this theory and while we haven’t had a bear market I have definitely been able to deploy some cash on some cheaper assets 🙂
That’s great to hear! There will probably be more opportunities coming our way in the next several years …
I think the more uncertainty, the better the opportunity! I was fascinated by the markets after the election. First there was a huge selloff during the after hours on Tues night when people realized Trump was going to win. But, then the following two days the markets shot up to all new highs! Asset allocation is the key to managing risk.
Ya I agree, the market response was really interesting! I am more of the belief that the markets do what they do, kinda random, then we make up some narrative later. If there is a random drop, it’s because of a “fear of the Chinese economy” or Greece or something, not just that it randomly happens from time to time.
Well written and useful broader context.
Having a strategy that allows you to be successful when prices go down seems to be the hardest thing.
But if you can do it (have the liquidity to be able to buy when things are on sale), and if you have the discipline to not freak out, it seems like you can be in a successful position, and welcome anything that comes your way.
I feel like the broader context is often overlooked by us youngins. We haven’t lived through anything like this, so when it happens, the fear of the unknown is even greater. Looking to history can help.
I think that every time there is change, there is more opportunity for the savvy investor. As Michael pointed out, the futures market dropped nearly 800 points but then the DOW immediately shot up and had the best week in 5 years and reached all-time highs.
Honestly, I thought the drop would last a bit longer before soaring back. I didn’t even get a chance to invest after it dropped!
It’s interesting to juxtapose that with the day before the election when the market shot up when the FBI decided to not charge Hillary. This makes me question if the market really care who’s in charge or if perhaps it just cares about knowing who will be in charge and what they will do.
Ya I agree, I don’t think the market cares too much. Volatility is good though for the traders – if it is up one week, down the next, a 401k is even, but the hedge funds might be turning a profit.
Hopefully everyone is getting educated now so that they will be a savvy investor when the next opportunity comes around!
Love your optimistic point of view. Creativity and flexibility are key to thriving in a bad market (and a good one for that matter!). It will be really interesting to see where things go over the next few years.
Always the optimist! A problem is just an opportunity for a solution …