YOUR QUARTERLY VIDEO REVIEW
Hear our thoughts on the previous quarter & your financial life.
Our 2021 Q3 Quarterly Client Update video, sent to our clients to accompany quarterly statements. Please contact your Triune Financial Planner with questions!
Quarterly Video - Q3 2021
Avoiding Recency Bias
Hello to all of our clients and friends!
It’s hard to believe we’re already in the final quarter of 2021. As we prepare to wrap up the year, we’re inspired by Ben Carlson, and his fitting synopsis of the stock market since 2010. With 11 years in the rearview mirror, let’s talk about recency bias. Recency bias is a cognitive bias that favors recent events over historic ones.
As you are aware, Triune’s approach to investment management is evidence-based, relying on 90+ years of academic research and data. That said, it’s sometimes difficult to keep nearly 100 years of stock market realities top of mind… especially considering how often we’re bombarded with “financial news” telling us “It’s different this time”. As Ben Carlson writes in his online publication, A Wealth of Common Sense,
“It is both always and never different this time.” , *Publication Reference: Click Here
What he means is this; There is always something new and different. New technology. More information. Better tools. A changing political climate. Taxes, and New Trends. But it’s also never different… because human nature is timeless. Therefore, so much of our Financial Life Planning process focuses on your unique goals, values and behaviors… the true drivers of a financially peaceful life.
Recency bias – our preferential treatment of recent experiences can often lead us to missing the realities of the long-term.
If we review the stock market since 2010, we will see that recent market performance does not accurately represent the reality of the long-term. So, what would the market teach us if we only paid attention to the time frame of 2010 through September 10, 2021?
US vs. International Stocks
The S&P 500 (SPDR S&P 500 ETF) has returned a total of 404.5%, with an annualized average of 14.83%. That’s nearly four times the total return of European stocks (Vanguard FTSE Europe ETF), five times the total return of Emerging Markets stocks (Vanguard FTSE Emerging Markets ETF), and three times the total return of developed Asian-Pacific market stocks (Vanguard FTSE Pacific ETF). Recency bias would tell us that the US is always the best place to be invested.
Tech Stocks vs. The Market
The Nasdaq 100 (an index of the 100 largest, most actively traded non-financial companies listed on the Nasdaq exchange and a common proxy for the technology sector), has returned over 800% since 2010. The index includes companies like Apple, Amazon, Google and Netflix… with several of those individual stocks performing well above the index itself. Recency bias would tell us that tech stocks always outperform the market.
Market Downturns are Short – very short
Since 2010, the longest stock market downturns have lasted only a matter of months. Recency bias would tell us that we need only to endure relatively short periods of market declines, and that the market will rebound quickly and continue climbing.
Now let’s zoom out… what does the last 90+ years tell us?
US vs. International Stocks
Unlike the last decade, there are many stretches of time where international stocks outperform US stocks. Foreign stocks outperformed US stocks for an entire 7-year stretch from 2006-2013. Imagine only owning US stocks during that time?
Tech Stocks Aren’t Always the Big Winners
The Nasdaq 100, the same index that provided significant outperformance since 2010, provided investors with a total return of nearly NEGATIVE 50% from 2000 – 2009. Imagine “betting on tech stocks” over that same period, and losing half of your money?
Market Downturns Aren’t Always So Brief
Since 2010, investor patience has not been tested with an extended market decline. Prior to 2010 many market declines lasted for several years, not just months. The S&P 500 took 4 years (49 months) to recover from the 2008 financial crisis. It took 56 months (nearly 5 years) for the S&P 500 to fully recover when the dot com bubble burst in 2000. While this last decade has been more kind in its speed to recover, we should prepare to be more patient than we’ve had to be.
So, what does this all mean?
While the past is not a guarantee of what to expect in the future, we believe it’s important to consider a long-term context when investing, and not be swayed by “what’s been working lately”. We do not know if the US will continue to outperform international stocks. We do not know if tech stocks will keep their winning ways. We do not know how long market downturns will take to recover.
So, what are we to do?
We stay rooted in planning, rely on evidence-based investments (that capture market realities over the long-term), and craft an investment approach that is intentionally aligned with your values and personal goals. While it is tempting to believe that what’s happening now is what will work in the future, we prefer to take a balanced approach that allows for us to capture what’s working well now (for instance, your Triune portfolio has benefited from the great performance in tech stocks), while not “going all in” on what’s working at the moment, but instead what’s worked over long periods of time.
Thank you for the opportunity to work together and collaborate on your Financial Life Plan. Our purpose is to empower you to make wise financial decisions that help you accomplish your goals. Please do not hesitate to reach out to us with questions; we look forward to the conversation.
Thank you.
Disclosures: Financial advisors are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients. Member SIPC. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against loss in a declining market. Investing involves risks including potential loss of principal and fluctuating value. All expressions of opinion are subject to change without notice in reaction to shifting market conditions. This content is provided for informational purposes, and it is not to be construed as an offer, solicitation, recommendation or endorsement of any particular security, products, or services. Triune Financial Partners, LLC is an investment advisor registered with the Securities and Exchange Commission.