Your Mind is Playing Tricks on You
Markets are Having a Good Year, However...
If you're human, you fixate on the closest objects and that is exactly what investors do with market sightings as well. Close-up market performance feels pretty good in 2019 - what's not to be happy about? Both primary investment constituents - stocks and bonds - are performing on all cylinders. Bonds are having a stellar year...try to find an economist that predicted that as the year began. (Economists forget to take that all-important
forecasting class
in their senior year.)
However, there are a few things to keep in mind regarding recent performance. Number one, markets began October lower than where they were at the end of April this year:
most of the returns in 2019 came exclusively in the first four months
. Number two, markets are not much higher than they were in September 2018. On a price basis, both the Dow and S&P 500 are a few percentage points higher than they where they were over a year ago.
(1)
How can that be?
We Just Forget Distant Things
The fourth quarter of 2018 was rough on virtually all asset classes. As we have noted previously, fourteen out of fifteen major investment asset classes had large declines in the fourth quarter due to a Federal Reserve rate increase, tariff wars and recession fears.
(1)
Investors fled virtually
all asset classes
en masse. While others may not, we officially refer to the fourth quarter of 2018 as a bear market for stocks - a 20% decline from the autumn 2018 peak. The final dip occurred on December 24th.
Which leads us to the title of this month's communication...
The Wealthy Made a $136 Billion Market Mistake
Most wealth begins as
earned income
, and financially successful folks are pretty good at generating income either through labor or business ownership. It's important to remember that the skillsets that lead to healthy
wage income
are vastly different than the characteristics necessary to
invest capital.
This is once again evident in statistics from wealth-tracking group CapGemini in their
2019 World Wealth Report
which announced that the wealthy moved huge sums of invested capital to cash in the first quarter 2019 after fourth quarter 2018 declines. According to CapGemini, this move to cash cost the wealthy
$136 billion in lost gains
as the major investment categories bounced back quickly in the first quarter of the year.
Wealth-Building Skills are Different
This shows again that wage-earning skillsets are not connected to the skillsets and characteristics required to successfully build wealth. Good strategy and patience are two of several components required for financial success - IQ is not a huge factor in wealth-building. While investors cultivate patience on their own, we can confirm alignment with and implementation of good strategy.
