Open Window's General Principles
January 11, 2023
What follows is a restatement of the most fundamental principles that have governed the nature of our past advice to clients and that will continue to govern in the coming year…and beyond.
You and I—we—are long-term, goal-focused, planning-driven investors.
We believe that the key to lifetime success in matters of personal finance comes from acting continuously on a specific, written plan. Likewise, we believe substandard results, and even lifetime failure, come from reacting to current economic/market events.
The unforeseen and indeed unforeseeable economic, market, political and geopolitical chaos of the years since the onset of the pandemic demonstrates that the economy can never be consistently forecast nor the market consistently timed.
Therefore, we believe that the only reliable way to capture the full, long-term expected return of your investments is to ride out their frequent but historically always temporary declines.
These declines—called corrections, bear markets, and recessions—happen frequently. Just in the last four decades or so, the average annual price decline from a peak to a trough in the US stock market exceeded 14%. One year in five, the decline has averaged at least twice that. And on two occasions (in 2000-2002 and 2007-2009), the Index has actually halved. Yet the same Index came into 1980 at 106, and went out of 2021 at 4,766; over those 42 years, its average compound rate of total return (that is, with dividends reinvested) was more than 12% per year.
These data underscore our conviction that the essential challenge to long-term personal financial success is neither intellectual nor even financial, but temperamental: it is how one reacts, or chooses not to react, to market uncertainty. Do you continue investing and saving (or spending) as planned, or do you give in to the temptation to discontinue your planned route until matters clarify?
Avoiding the natural temptation to discontinue your planned route continues to be our recommendation, and in the strongest possible terms.
These will continue to be the bedrock convictions that inform our advice as we pursue your most important financial intentions together.
"US stock market" and "Index" as defined by the S&P 500 Index. S&P data © 2023 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
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