January 12

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Pending 2024 Recession

FAMILY UPDATE!  

Hello.  This is Senay.  I am my Dad's only daughter, and I am seventeen years old.  I wanted to set a couple of things straight.  I always read his family updates, and last week's made me mad.

1.  He said that he had to pick up all the slack when my Mom was sick on Christmas.  This isn't true!  I wrapped the presents.  I put them under the tree.  I was up way later than him working on this stuff.  He made it sound like he did everything.

2.  He made it sound like he bought all the gifts.  He barely bought anything at all!  I was the one who picked all the thoughtful gifts.  I work all year to make sure I find special things that my brothers and parents like.  He just goes on Amazon a couple of weeks before and throws a bunch of stuff in the cart.  I even had to tell him this year what to get my Mom for her birthday (he had no idea).

3.  He made it sound like Christmas was magical because of his work.  It wasn't.  I was the one that put up all the decorations and lights.  I made it merry and bright.

I have no idea what he is thinking.  He is taking credit for everything I do, and I wanted to set the record straight.  He's a great Dad and everything, but I think he tries to make himself look good in these updates. 

I hope everyone has a great year!  -Senay

P.S.- I put a picture of me jammed with Grammy in the backseat (Grammy and Pop visited).  

It's hard to listen to much news without hearing warnings of stock market corrections. I’ve had several people in my office recently scared to death (the media scare tactics are always the worst at the beginning of the year).

There have always been talks of recessions, but what makes this worse is how financial news has blended with political news. The stock market’s performance has become a political talking point.

It is entirely out of control.

Remember that the news will report on anything that will get and hold your attention. Stock market pullback? Big news! President talking about economic struggles? Network executives are even more thrilled. It’s great for ratings, but it is terrible for you.

Why? It gives you the faulty perception that anyone, and I mean anyone, can predict a recession. A couple of years ago, I sat through a lecture by a highly respected group of economists. What was their message in 2018? "There is a high probability of a recession halfway through 2019." Nope. Didn't happen.  

In 2019, I went to a conference with hundreds of other advisors. What did the keynote speaker predict? Recession in 2020. Nope.

Then again, in 2021, I read an entire book about how Covid would destroy the economy.  It talked about how a recession was almost guaranteed.  Was there?  Nope.

There were lots of bad predictions about 2023.  There was high inflation, housing costs were pricing out almost everyone in the market, and we witnessed terrible international events.  So what happened?  The U.S. stock market (S&P 500) was up 24%

Oops.

But they will decry, like all prognosticators, "It is happening more slowly than we realized. The recession is still coming, but we see it coming in 2024." And maybe it will. But maybe it won’t. And if there is no recession, you could be just as financially damaged as if there were. How? Let me explain through an illustrative anecdote.

Meet Betty Bonnett.

Betty worked hard her entire life as an office manager at a small, family-owned business. The company owners offered a 401k and a very generous match to their employees' contributions. Like most small businesses, the owners genuinely cared about their employees and did everything possible to help.

After 35 years, Betty finally decided to retire at age 65. Until now, she had contributed money to her 401k and never gave it much thought. The financial guy at work had suggested some mutual funds, and Betty hadn’t changed her portfolio much through the years. She had other, more pressing issues to deal with. Keeping an eye on the stock markets was not really on her radar.

Once Betty retired, she was suddenly faced with a terrifying decision: What do I do with the money now? The gravity of her financial choices had suddenly multiplied tenfold. She realized that stocks and bonds are powerful wealth-building tools. Heck, she’d seen her 401k grow almost every year since 2008.

So Betty met with a planner and got her money working in a diversified portfolio. Everything was going great … until Betty started to see stories about an imminent economic catastrophe on the way.

The impending market pullback was everywhere on TV, the radio, the newspapers.

Betty couldn’t escape it.

Betty grew sick with worry. She watched her portfolio every day. On one particular day, the market fell 3%. All in one day! It was the last straw for Betty. She called her advisor and demanded all the money be put into cash.

The market went up 4% in the next two weeks. "Now the economy is at an all-time high," Betty thought to herself, "it is sure to crash now."

It didn’t. Over the next six months, the stock market grew by over 12%.

Betty had made a terrible mistake. She forgot that investing successfully involved keeping her money working for a long time — not trying to time the markets. The 24/7 news establishment had completely derailed Betty’s financial well-being.

Her long-term returns will be dismally low by missing the "ups" in the market.

What goes down always comes up.

Put another way, if you never looked at your statement again, took out 5% of your account value each year, and then looked again at your account on your deathbed, guess what? In almost every case, you will have more than what you started with.

While I can’t guarantee this result, it has been the case in every example since 1930.

The average retirement lasts around 20 years. The worst 20-year period in the stock market since the Great Depression returned an average of 5.6%. The best 20-year period returned an average of nearly 18%.

Nobody knows if and when a recession is coming. Trying to time the markets is a losing bet. Close your eyes to the day-to-day hysteria and Trust. The. Process.

And I know it's hard right now. With all the economic and social turmoil happening in this country, it almost seems like a market correction is guaranteed. But you need to realize that the stock market is not logical. Covid would logically have wrecked the economy. It did not. In fact, the market reached all-time highs.

You would think rampant inflation would cause the stock market to drop. However, studies show that inflation and stock market returns have no correlation. The stock market is not logical.

You can confidently turn away when you see a hysterical news reporter or read a hyperbolic editorial. You know better. Their manic doomsday prophesying can’t affect you if you don’t let it.

You have a plan. You are harnessing the power of stocks and bonds. You are utilizing financial planning concepts that have worked for 200 years. You are not in danger. It might feel that way, but feelings are not facts.

Be encouraged! Be confident! And if you know someone who is freaking out over the "impending" recession, be generous! Share this newsletter with them.

Be Blessed,

Dave

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