When I’m about to shake someone’s hand, pat their back, or give them a hug I stop short and say to myself: “Welcome to the new normal.” The COVID-19 crisis is new to all of us. The inability to shake hands, social distancing, the necessity of wearing face masks—it’s all new.
But the phrase “The New Normal” isn’t, it’s been in use for decades. An article was published on the cover of Business Newsweek on August 13th, 1979 that was titled: The Death of Equities. In the article, they called inflation the new normal. Inflation was destroying everything and negatively impacting the stock market. The article said the stock market was a loser’s game and that—besides a lucky few—you wouldn’t make money in the stock market.
The phrase has been tossed around numerous times throughout history—but what does it really mean? How does the new normal pertain to the stock market? In this episode of Best in Wealth, I talk about what the new normal has meant historically and what it should mean.
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Outline of This Episode
[1:18] Welcome to the new normal
[3:44] The New Normal as it pertains to the market
[7:01] The best way to deal with a crisis
[9:06] We need to call it something different
[14:18] Let’s make planning the new normal
[15:06] What if you had listened to that article?
What every “New Normal” has in common
What can we learn from the past that is predictive in the moment? Almost nothing. People are saying it’s different this time—and they’re right. This recession is because of a pandemic. But there were other crises that led to recessions. The Vietnam war, the savings and loan crisis, the Asian financial crisis, the.com bubble, the great recession of 2008, and many more.
Every financial crisis has a different cause and crises keep happening. Why? Because they're NOT predictable. If downturns in the market were predictable, things would self-correct easily. The truth is, all of these events only have one thing in common: each time they happen, people say “It’s different this time”.
The best way to deal with a crisis
Every crisis IS different, but the best way to deal with them is always the same. We can’t control the crisis. But what we can control is how we respond to them. You need to prepare to deal with the unexpected before it happens—not when you're stuck in the middle of it. When you're stuck in the middle of it, you make bad emotional decisions. We should call it the old normal—because these things happen. Go back to the principles of dealing with the uncertainty in the stock and bond markets. Things don't line up exactly the way that we want them to, ever. So what do you do?
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Two things we MUST do
You want to make sure you are doing two things to be prepared when every new normal comes around. Firstly, look at the probability of various outcomes and then decide how much risk you want to take. What is your risk tolerance? What is your risk capacity? What is your required rate of return to achieve everything that you want to? Then we can develop a portfolio that matches your risk level.
Secondly, be prepared for market downturns once or twice a decade. Accept that you’ll never know when they’re going to happen. You don’t have to predict the crisis that’s coming, you just need to be prepared for it. When you have a plan and are prepared for a crisis, you feel better before and after they come. You don't need to stress out about your investments because you already know what the outcome is going to be when you live through the economic downturns.
And if you have a good investment policy statement, that's what you will do. You will rest easier if you don't already have a plan that includes crises and the range of possible outcomes. It's not too late to create one. I don't care if you're 25 or 75, it's never too late. Having a plan should be the new normal.
What if you had listened to that article?
What if you had listened to the Business Week article from 1970? You’re 30 years old, and let’s say you decided to pull all of your money out of the market. If you had $50,000 in treasury bills it would be $250,000 now. If you put the $50,000 in the S&P 500 (which I wouldn’t recommend now) you’d have $4.3 million now. That’s the difference between a good retirement and a great retirement.
If you think the “new normal” is what the media is telling you, you could be the person losing out on millions of dollars. Instead of trusting the media, make your new normal planning for your future. That means investing, estate planning, planning insurance, having a spending plan—all of it. And if you do that, you will have a successful outcome in retirement.
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The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.