Pardon the language, but I'm sure most of you have the same thought. What. Is. Going. On?
Let me try to break it down for you.
Currently we are being beaten down almost daily by a narrative driven by a president with a hair trigger on his Twitter account. Twitter and other social media are designed to feed our brains a nice hit of dopamine. Dopamine drives our brains reward center to either seek out or avoid the current stimulus. In a world with the leader of the largest economy in the world can wield this dopamine injector like Thor wields his hammer in The Avengers, we are only naturally going to feel wild emotions in response to every tweet.
The US and China are engaged in an escalating trade battle. It could get worse still. The US is gearing up for another presidential election and Mr. Trump wants to be re-elected. He is jawboning the Federal Reserve to cut interest rates to limit the impact of his increasing tariffs. Not unprecedented for a president to push for a policy of their choosing from the Fed, it’s just, you know, never been done via Twitter before. China’s President, Xi Jinping, doesn’t have the same election pressures and that is playing into how they are responding to each tariff announcement. The classic short game vs long game is playing out.
What is flying under the radar with each tweet are all the secondary impacts of this trade battle. Yes, consumers in the US are paying the price. Chinese people are also paying a price. Beyond that, Europe and Germany in particular are feeling the effects. Germany is one the largest trading partners of China. The tariff-induced slowdown in China has reverberated into Germany. German industrial production is at recessionary readings and the country may soon make it official. Germany isn’t super important to the US economy but it is critically important to the Euro Zone and the Europeans have a whole host of problems they still haven't really fixed in the past 10 years.
I touched on negative interest rates in this recent post so I won’t expand on that here. Just know that is also impacting the world but mostly it is a result of the above points and the slow economic growth that has been the norm for the past 10 years.
Lastly, the one thing hanging over all of us is your experience in the last recession. It was a painful memory and it still sits in our minds. I know exactly how you are feeling. I know that when you see your investment portfolio going down from one month to the next your brain is screaming, “Here it comes again! I don’t want to feel like I did in 2008. Get. Me. Out!” It is entirely natural and normal to think like that. You cannot override your emotional experience of the Financial Crisis. You could have lost your job. You probably know more than a few people who lost their job. Your friends in the US may have even lost their home. It was truly a scary time and one that had not been seen in North America in over 75 years.
I also know you are now 10 years closer to retirement or you are in retirement. I hear it in your voice when you call me to ask, “What is going on?” You’re not asking me about trade battles, you are asking me about your personal financial plan. You are asking me, “Am I still ok?” You are asking me whether your plans have been derailed by some guy who has an itchy Twitter finger and the keys to the nukes. You have extrapolated how you felt when your portfolio was down a whole bunch when the calendar said February 2009 and you’ve now pushed it into how you feel about a 2% down day in August of 2019. You want to do anything to avoid feeling like you felt back then.
There is something all this anxiety about your investments is telling you. You are probably not as risk loving as you thought you were. We all love it when our monthly statements show a steadily increasing account value. If you have been a regular investor in equities since March of 2009, you have been one happy camper and you have probably also been ignoring your asset mix. A mantra of “I want 40% in safe bonds earning 3%” turns into questions about why you have any bonds when your equity portion has tripled in 10 years. If you haven’t rebalanced during that run up, you have done great but your mind is playing a trick on you. It’s simultaneously telling you let it ride while also reminding you that it could also drop like a stone tomorrow. Again, dopamine is a helluva drug, just don’t let it run your investment strategy.
Take time this fall to speak with your trusted advisor. If you were nodding your head reading this post then it’s time to have a chat about what steps you can take to get the benefits of growth but also reduce your anxiety about the potential for a downturn. You can thank me for it later.