I’d like to submit that one of the goals in life is to evolve over time in such a manner that your perspective and insights are continually improving; some would call this wisdom. Whether this progression is in your spiritual, physical, or financial life, you, your family, and your community will be better served by a better you. 

We have many benchmarks to compare our own progress and the worst examples of human behavior are a bittersweet reminder that we need to try to keep improving, lest we regress into bad habits that do not serve us well. And of course in all walks of life, we’ve always had friends, teachers, and mentors to help us attain insights we might otherwise not have. This guidance is essential to a fulfilling life. Buddhist scriptures talk of different realms of insight and wisdom, with the higher realms being attained by right view, right effort, right action, and other intentions.

When it comes to financial wisdom, the same applies. You could view the lower realms of financial wisdom as being populated by those who are overly focused on shorter- term investment performance only. This mindset is accompanied by a belief that “I can do it just as good or better than you, so I’d like to control things more.” The problem with this perspective is that it’s extremely shortsighted and most likely missing important elements of overall financial health. 

Don’t make your efforts toward financial wisdom and your legacy based solely on continually tracking investment performance and evaluating how well you can do versus the other guy; rather, focus on choosing a fiduciary who can take care of your financial ecosystem now and in the future for continuity when you are not willing or able to focus on these duties. And remember, it’s not if this day will come but when— most likely when you and your family least expect it and often happens fast.

Yes, you’ve come a long way in building your financial legacy for you, your family, and community, but those who are successful in preserving that hard-earned success for the benefit of their retirement, surviving spouses, and future generations understand the big picture and the long view.  Questions like, “Who is the next steward of my financial legacy and are they prepared?” are asked by financially wise people, rather than, “How did my investment do yesterday and what’s going to happen when interest rates rise?” 

These qualities are found in the people who will attain the highest realm of financial wisdom. I also find them in those who benefit most from financial advice.

2021 Q4  Index Review Through December 31

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net dividends]), Emerging Markets (MSCI Emerging Markets Index [net dividends]), Global Real Estate (S&P Global REIT Index [net dividends]), US Bond Market (Bloomberg US Aggregate Bond Index), and Global Bond Market ex US (Bloomberg Global Aggregate ex-USD Bond Index [hedged to USD]). S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2022, all rights reserved. Bloomberg data provided by Bloomberg.

The 4th quarter of 2021 was more of the same that we saw for the year: continued positive market returns despite the uncertainties of the pandemic and the resulting issues it caused. The only listed index that had a negative return for the quarter was emerging markets, but it was not a big downturn at only 1.31%. U.S. and developed international markets provided robust returns, with the global real estate index surpassing all indexes with a 12.35% return for the quarter. The U.S. and global bond indexes, while not intriguing, held their own.

It was a year of uncertainty and anticipation, of hopes for a return to a degree of normalcy following the onset of the COVID-19 pandemic in 2020. And it was a year that showed, again, the difficulty of making investment decisions based on predictions of where markets will go—as well as the enduring benefits of diversification and flexibility.

Real returns illustrate the effect of inflation on an investment return and are calculated using the following method: [(1 + nominal return of index over time period) / (1 + inflation rate)] − 1. S&P data © 2022 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Based on non-seasonally adjusted 12-month percentage change in Consumer Price Index for All Urban Consumers (CPI-U). Source: US Bureau of Labor Statistics.

For investors worried about the impact of inflation on their portfolios, it’s important to remember that U.S. stocks since 1991 have generally provided returns that outpaced inflation. This is a valuable reminder for those concerned that today’s rising prices will make it harder to reach long-term financial goals. As seen in the chart above, equity performance in the past three decades does not show any reliable connection between periods of high (or low) inflation and U.S. large cap stock returns. The weakest returns can occur when inflation is low, and 23 of the past 30 full years saw positive returns even after adjusting for the impact of inflation.

Morgan is an investment advisor in San Diego, Calif. He is registered with the Securities and Exchange Commission (SEC). Registration of an investment advisor does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the commission. Morgan only transacts business in states in which he is properly registered or is excluded or exempted from registration. A copy of Morgan’s current written disclosure brochure filed with the SEC, which discusses among other things, Morgan’s business practices, services, and fees, is available through the SEC’s website at www.adviserinfo.sec.gov.

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