Reflecting On The Past Year: 6 Lessons For Investing And Life

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September 1, 2023, 8 AM ET

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It’s that time of year again: The Yamim Noraim! A time for davening, teshuva, family, and reflection. While all those High Holiday season themes are important, I find that it’s the act of reflection that is foundational to setting the stage for the upcoming year. It’s easy to just go through the motions during this time of year. However, taking the time to introspect on what happened over the past year is crucial to spiritual and material growth. Jewish Press readers should look to their Rabbi for spiritual guidance and inspiration, but I will do my best to provide some perspective on the financial side of things. As a starting point, let’s revisit some of the top financial headlines from this time last year:

The highest inflation in four decades.
Double-digit losses in both stocks and bonds.
The Federal Reserve aggressively raising interest rates.
Continued COVID-19 lockdowns in China, the world’s second-biggest economy, causing supply chain issues around the world.
Gas prices shooting through the roof.

Things have changed a lot over the past year. The current view of the aforementioned headlines is:

Inflation is around 3.2%, in line with historical averages.
The S&P 500 is up over 14% this year, while US bonds are up modestly.
The Federal Reserve is still raising rates but is signaling they may pause.
Much of the world has moved on from the COVID-19 pandemic.
The price of gas is down approximately 4.5% from a year ago.

I’d be remiss if I didn’t mention that there are still plenty of concerns today. The U.S. credit rating was downgraded, there are challenges in the regional banking sector, and, as always, there is political turmoil and bickering in Washington. A year from now, I imagine many of today’s concerns will have disappeared, but new challenges will emerge. That’s the nature of market cycles and life in general. Below are some investment lessons I’ve contemplated as I reflect on the past year in anticipation of Rosh Hashana: Lesson # 1: The unpredictability of the markets: As we can see from the financial headlines in 2022 versus 2023, things have improved on many fronts. The markets in 2022 were a bloodbath, with most asset classes plummeting in value. Even bonds, which are traditionally a more conservative area of the market, dropped double digits. This year has been dramatically different, with attractive performance across the board. The takeaway: Nobody knows what will happen from year-to-year. The key is not having all your eggs in one basket. This concept is called “diversification” in the field of investing. Avoid concentrating into one investment (e.g. real estate, large U.S. stocks, bonds, etc.), and spread your money across a variety of asset classes, to mitigate your risks and be able to ride out any storm. Lesson # 2: Don’t try to time the market: Given the constant fluctuation in stock prices, it’s tempting for investors to try to time when to go in and out of the market or to chase the latest hot investment. This strategy doesn’t work. Putnam Investments put out a wonderful study last year illustrating the flaws of trying to time the market. They showed that in the 15 years from December 31, 2006 to December 31, 2021:

If you stayed fully invested in the broad market during that timeframe you would have experienced a 10.66% annualized return.
If you missed the 10 best days, your return would drop to 5.05%.
If you missed the 20 best days, it would drop to 1.59%.
If you missed the 30 best days, it would drop to -1.18%.
Finally, if you missed the 40 best days over those 15 years, your return would drop to -3.58%.

The takeaway: Going in and out of the market puts you at risk for missing the best days, which can hurt your returns. If investors feared the markets in 2022 and decided to leave at the wrong time, they could have missed the entire run-up in the market this year. Lesson # 3: Stay optimistic: Positive thinking is one of the traits that has allowed the Jewish people to endure for 5,000 years. It is also a trait that every Jew consistently embodies as they hope for, and look forward to, the coming of the Mashiach. After a terrible 2022, things have rebounded meaningfully in 2023, as of this writing. This happens regularly in the market. In fact, historically, for every one down year in the U.S. stock market, there have been three positive years. Takeaway: Stay positive and position your portfolio optimistically. The market will rebound…it always does. Lesson # 4: Ignore the noise: There’s a lot of news out there. Most of it is not relevant to your life or to your portfolio. Sure, it’s scary to hear about the implosion of a small regional bank, an impasse on the debt ceiling in Washington, or a well-known market predicting that civilization is over as we know it. The truth is negativity sells! It’s why any time you turn on cable news they are talking about something terrible. Few people would listen to the news if things were always going well. Things are never really as bad as the talking heads make them out to be. Furthermore, making reactionary decisions to the news is always the wrong approach. Takeaway: Investors should listen to the news for entertainment purposes, not for making financial decisions. Instead focus on things that actually impact the way you should design your portfolio. This includes your time horizon, risk tolerance, level of assets, and specifical goals. Most other information is not relevant. Lesson # 5: Commit to making the right decisions: Making good financial decisions isn’t always easy. Setting up a framework to help make good decisions can be immensely beneficial. Some key principles for making sound money decisions include spending within your means, maintaining a healthy savings rate, investing prudently, and not acting emotionally. Takeaway: Making good financial choices requires discipline, which many people lack. That’s why automating as much of the process as possible can help. Automate how much you save every year by having the cash go directly into your investment accounts. Predetermine your investment strategy in an Investment Policy Statement. These two automations alone can create a solid financial framework. Lesson # 6: Stay the course: One of the biggest determinants of financial success is the ability to stick with a strategy through many different environments. Investing is different than many other aspects of life, where success comes through continual hard work. Professional athletes need to train daily to ensure they are operating at the highest level possible. Lawyers need to draft documents and research the issues to provide appropriate solutions to their clients’ needs. For investing, on the other hand, the less you do on a regular basis, generally the better the outcomes. Much of the work is done upfront. The key to success is sitting back and letting the power of compounding work its magic. This is more difficult than it sounds. Most people don’t have the intestinal fortitude to sit back and do nothing. Takeaway: Doing less in investing is usually the right approach. If this is a challenge for you, hire someone to prevent you from patchkeing with your finances. Regardless of what challenges or opportunities you’ve faced this year, it’s important to understand that it won’t last forever. Life and the markets are cyclical. If 5783 was a terrible year, it won’t be that way forever. If 5783 was a glorious year, it won’t be that way forever, either. This constant change in life is inevitable. It gives us hope for the future when things don’t go our way and keeps us humble when they do. Appreciating the ups and downs and having a plan in place to help us manage that reality, is the key to success in both investing and life. Wishing all Jewish Press readers a shanah tovah um'tukah!