TURBULENCE

One question: Will tomorrow be like today?

Another question: Will 2021 be like 2019, or even 2020?

Why am I asking about tomorrow?  I have a real, visceral and intellectual dislike for volatility in the investment arena, and now TURBULENCE is overtaking volatility. 

We all tend to believe that the sun will come out tomorrow, much as it has; that the world, as we know it, rolls on…. Changes are occurring, however.  Changes beyond most expectations.

Recently, General Electric (GE) “froze” their pension plan.  I remember when GE was one of the strongest companies on the planet, but that freeze (along with the company’s recent performance) suggests that is no longer true.  GE is not alone in corporations with under-funded pension plans.

Nationally, many (if not most) state and local pension plans are struggling.  Corporate plans are no different.

Many corporations are facing dramatic changes in their customer base, such as web-based shopping.  Clearly, technology is having an effect.  And climate?  That also.

There is the “normal” ebb and flow of consumerism, to be sure. But here is a more immediate and, also, long-term factor in so much today: again, climate.

We are seeing drought in some areas of the world, heavy rains in others, hurricanes, tornadoes, earthquakes, tsunamis, and other damaging events.  Seawater is seeping into south Florida.  Louisiana is losing formerly habitable land to the gulf waters.  And fires. Lots of fires.

I have a client in southern California who lost everything to a fire.  I am aware that insuring a home for loss from fire in becoming increasingly difficult in many areas of that state.  The Mississippi Delta is flooding on occasion, more frequently than in the past, and the result is loss of farmland.  We are seeing dislocations of populations and will likely see that increase massively during our lifetimes.

Now consider investments. Stocks, bonds, funds, many alternatives… Are businesses affected by climate in their operations and, in turn, profitability? You bet they are!

Pop quiz: Name five companies that are a sure bet over the next few decades.  Name one!  List any current pension plans that are certain to be around and healthy for the retirement years of any current 45-year-old.

How about mutual funds?   Which managers do you trust (and their successors) to navigate the turbulence in investment options going into the future?  How will that play into the common seemingly-blind approach to investing in 401(k)’s?  Hey, don’t mutual funds, over time, simply trail an index, and charge fees? If there is obvious turbulence in the markets, won’t any losses and recoveries disrupt gains?

The best I can recommend to a client is to get away from the Wall Street model as I see the turbulence increasing.  As the core of your investments, focus on a “business model” instead, such as a mutual insurance company where you can participate in that business’s success.  A regulated, conservative, proven approach.

I work with 50-year game plans for clients.  Fifty years is a long time to assume things will continue as they have, when we’re seeing so much change now.  It is increasingly important to find simplicity, consistency and guarantees from as likely a surviving sector (and company) as possible. 

I urge you to design that into your financial strategy.