This Too Shall Pass

Budget Planning

April 19, 2018

While the origin of the expression ‘This too shall pass’1 is disputed, its underlying meaning is easy to decipher. All material conditions, the proverb implies, whether good or bad, are transient – the best and worst of times will eventually go away.

This sentiment is one that, particularly right now, all sensible long-term thinkers and strategic investors should anchor their thoughts around.

Tempting though it is, allowing the prevailing political and financial tempests – the threat of a trade war between the U.S. and China, the initial loss of 20% of Facebook’s market value in light of the Cambridge Analytica data breach, the continuing lack of resolution on NAFTA, Trump’s escalating difficulties associated with the Mueller investigation – are all examples of issues that none of us can control.

My view is that in any period of market and political volatility – such as the one we’re in right now –is to focus on the fundamentals before crying wolf.

Everyone’s wealth-building future – yours and mine – depends on three things:

  1. How much you save and invest.
  2. How you control your spending.
  3. How competently your portfolio is diversified.

Everything else is noise.

Saving and investing

Financial planning is the key to staying afloat during turbulent times. As is avoiding making decisions based on emotion. A sudden downward market trend is not a signal to sell. Stay invested. Give your portfolio the chance to recover from short term paper losses.

Control your spending

There’s a causal connection between disciplined household money management and the – considerably more sophisticated – process of investment, portfolio planning and long-term wealth accumulation. Why?

Simple. A rigorous household budget planning process is the bedrock upon which discretionary dollars can be deployed to build longer-term financial assets.

The good news is that there are several personal finance apps out there – I will be posting a blog shortly called Embrace the power of personal finance software tools – in which I will review three useful apps called: Mint2, Digit3 and Quicken4. Be sure to check them out.

Ensure your portfolio is properly diversified

As my existing clients know, a diversified portfolio tends to minimize risk and losses precipitated by sudden market downturns.

It is always recommend to review your existing investments and determine whether your funds have been allocated appropriately and are in line with your varying goals.

Revisit your portfolio periodically with your advisor so that you can take advantage of a declining market and rebalance your portfolio accordingly.

Conclusion

I’m not a stock market guru, but I do believe in certain implacable truths:

  1. Fundamentals drive markets.
  2. Markets are resilient.
  3. When earnings grow, markets follow.

Strong earnings growth drove stocks in 2017, and a similar degree of progress should continue into 2018, setting up another good year for the stock market in general.

A final sober observation: if there is a trade war between the U.S. and China – the threat of which is receding – no one will win and the entire world will feel the pain.

Michael Fahy, The Michael Fahy Group, CIBC Wood Gundy, 604-691-7207.


1 https://www.quora.com/What-is-the-origin-of-the-phrase-this-too-shall-pass
2 https://www.mint.com/
3 https://digit.co/
4 https://www.quicken.com