Earlier this year I had indicated it was my belief that we were getting very close to a time period where an investor should consider being Very Bullish over the Long-Term. In today’s economic, political and geopolitical uncertainty, one would doubt and even consider this a ludicrous “prediction”. It is easy to understand an investor’s reservation to this idea and there is no doubt that I am going out on a limb. This would especially be the case if we enter another significant downturn. Despite the inability to travel in time or possess a magical crystal ball, with history as a guidepost, the odds suggest that it might not be such an outlandish thought.
My ensuing analysis won’t cover P/E ratios, dividend yields, economic trends, inflation, interest rates or any other items generally associated with market performance. Instead, it is based on long-term historical standards which have been repeated numerous times over the last 145 years. Remember, though, the axiom that past performance is not indicative of future results might also make my assertions mute. Hopefully, you will find some “pearls of wisdom” and a new perspective on long-term optimism that I believe is seriously lacking in this country.
Is a Long-Term Investment Horizon for Every Investor?
Some investors may think that Long-term doesn’t apply to them due to their age, health or a myriad of other complicated issues. However, it is my belief that in many instances investors will dramatically underestimate their long-term “runway”, even after they retire. Their apathy toward the market and missing the end of a Bear/Flat Market will preclude their catching the coming changes.
Recent articles and quantitative researches are emerging that reconsider the standard viewpoint toward portfolio longevity. Previous studies were based on our historical concept of life expectancy which is no longer valid. In light of this new perspective the discussion among financial professionals, accountants and attorneys has been geared toward the concept of longevity annuities (which do not begin to pay off until age 85), reverse mortgages, and other types of home value cash outs. Even the concept of “bored retirees” taking a part-time job to keep busy or to provide some minor supplemental income is suggested. All suggestions are attempts to maximize an investor’s financial well-being in an effort to provide for longer life spans.
Five years ago the anticipated life expectancy benchmark that I used was around the age of 95. While no one knows how long they will live, I believe an investor needs to plan to live until they are 100-110 years of age!
Many may scoff at this notion, but medical and drug therapy breakthroughs have dramatically increased the average life expectancy. Illnesses that were “death sentences” in 1980 or 1995 or even in 2010 which now can be managed or even reversed. The profound changes from prior generations of many people having to live in pain from arthritic joints or other maladies that can now be treated though knee or hip replacements or even some other advances in technology.
Examples of amazing medical advancements have been used to benefit our injured soldiers that served in Afghanistan and Iraq. Battle wounds that just ten years ago meant permanent impairment or even death are now being handled in a complex, sometimes routine, fashion. Oftentimes giving those that served our country a new lease on life. What few people outside the medical profession realize is the techniques that have been advanced saving our soldiers, are now benefiting many in the civilian population.
Also, there are additional studies being conducted right now that, if successful, may one day reduce or reverse the long-time scourges of cancer, Alzheimer’s and other life threatening illnesses. The wonders of medicine and technology have greatly enhanced the potential for increased enjoyment during retirement and an extension of life. The mantras of new age 70 is the old 50 and new age 90 is the old 70 will become more prevalent as we pass in time.
Despite the many variables that could shorten one’s life, I believe we must change and prepare for our longevity mindset. Once we consider the odds of an extended lifespan a different approach to investing and market volatility can be appreciated and implemented.
My statements are not meant to encourage you to significantly increase the risk assigned to your portfolio. It also doesn’t mean you should travel to the nearest casino to put some money on “Red 27” at the roulette table. Instead, the odds suggest that if history repeats itself, which I believe they will, an increase in portfolio optimism and an allocation toward longer-term investment strategies is warranted. The typical investor should prepare to take advantage of what I see is a long-term Bull Market beginning sometime in the near future.
CHECK BACK FRIDAY FOR PART TWO IN THE SERIES
Tom is the Founder of TRG and has been the President and Chief Investment Officer since 2008.