Jul 24 • 2 min read
Is Your Retirement Plan Antifragile?
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As President Trump’s self-imposed deadlines approach, investor concerns about tariffs and global economic instability are once again at the forefront. Add to this the ever-present geopolitical tensions in the Middle East and Europe, and uncertainty feels inevitable. In today's email:
Before we dive in... did you catch this week's podcast? 👇 (📚 Reminder: Don't miss the "What I've Been Reading" section included at the bottom of every newsletter.) Planning for UncertaintyThe last five years have clearly demonstrated how widespread uncertainty is, and importantly, how resilient markets can be in response. History consistently reinforces this lesson. Consider just the events of this decade: A global pandemic, multiple armed conflicts, contentious debt ceiling debates, election surprises, Chinese spy balloons, crypto booms and busts, two bear markets, soaring inflation, recession fears, and more. Each of these headlines triggered fear and panic, yet the market has ultimately thrived through it all. Why does this matter? Because many investors mistakenly equate uncertainty with risk, leading them to (potentially) make costly mistakes. However, uncertainty itself isn’t risky; the risk comes from inappropriate reactions to uncertain events. Today, uncertainty centers around a unique set of conditions: Stocks at all-time highs... stretched valuations... intense economic and geopolitical tensions... Understandably, many investors are wondering: “How can stock prices be this high when uncertainty feels equally elevated?” It seems logical that something has to give—but does it? Data consistently shows that new market highs often lead to further highs, rather than immediate downturns. Yet, fear persists. Yes, U.S. stock valuations are historically high. Even in calmer times, high valuations might raise concerns. But it’s important to remember something Howard Marks once said: “Even when an excess does develop, it’s important to remember that ‘overpriced’ is incredibly different from ‘going down tomorrow.’” So, what should investors do now? Is there a chance stocks could decline? Certainly, that possibility always exists. But stocks could also continue climbing, just as they have, despite numerous obstacles. Betting against continued growth has been its own form of risk; one that investors often overlook. Nobody knows exactly what the future holds, which is precisely why it’s essential not to react impulsively to uncertainty. Selling everything or sitting on the sidelines to wait for clearer skies is tempting, but it typically leads to disappointment. Instead, investors should follow Nassim Taleb’s principle of being "antifragile." In practical terms, being antifragile means creating a retirement plan that expects uncertainty and sticking to that plan when uncertainty inevitably arises. As Charley Ellis wisely noted: “Benign neglect is the secret to long-term investing success. If you change your investment policy, you are likely to be wrong; if you change it with a sense of urgency, you’re guaranteed to be wrong.” Bottom LineSince uncertainty isn’t going away, the best approach is to focus on resilience rather than avoidance. This mindset underpins the work we do every day. Rather than attempting the impossible (predicting the future), we focus on creating robust financial plans. Then, we build portfolios specifically designed to support those plans and withstand whatever challenges may arise. 📚 What I've Been Reading
Thank you for reading! Please reply to this email with comments, questions, and/or feedback. Stay wealthy, Taylor Schulte, CFP® |