This week, investors began to be concerned that President Trump’s pro-growth agenda might become derailed by controversy surrounding possible Russia connections and the firing of the FBI director. On Wednesday, the stock market depreciated by roughly 2% and the VIX climbed from about 10 to 15.
President Trump has been surrounded by controversies since he began his presidential campaign and took office. If you are spending your time worrying about Trump, you may be short-changing yourself as an investor. An investor is a person who buys and owns an appreciating asset over time. There is no asterisk next to this time because of Trump. Time is time and is an absolute.
Time for an investor is a doubled edged sword. Over time, the value of cash is diminished by inflation. For example, if you have $100,000 in cash today, at a 2.5% inflation rate, you will suffer a -22% loss of buying power over the next ten years. If inflation were to rise to 4% (expected by many bond experts), a cash portfolio loses approximately -44% of its buying power over ten years. Cash may be king during certain times, but cash is not riskless.
On the positive side, time allows for compounding of returns. For example, an investment of $100,000 at a 7% average annual return grows to nearly $200,000 in ten years. In twenty years, the portfolio grows to $387,000. Allegedly, Albert Einstein said “the most powerful force in the universe is compound interest.”
You cannot recover lost time. You can prevent more time from passing without having your money working for you. Be an investor, now.
Staying focused on your portfolio and on what you can control as an investor is not easy at times. Trump has been a master of creating headlines that stir emotions. Effective, long-term investing is based on taking emotions out of the process. It is the disciplined process of buying attractive assets at attractive prices in a balance that optimizes the risk/reward ratio you are seeking.
Shown below is a chart of returns for the average investor. It is clear from the results, investing is not easy.
We believe being an excellent, fully informed investor is a full-time job. It requires having an open mind, experience and access to great investment opportunities. We regularly perform rigorous reviews of a wide array of investment opportunities. Recently, we purchased convertible bonds, long-short equity funds, and international equity funds for our clients which we believe will enhance return and add to downside protection.
For accredited fixed income investors, we have been reviewing excellent alternative investments in senior secured lending funds for businesses and real-estate which have a stable net asset value and steady monthly or quarterly income. Several of these investment opportunities have passed our review process and we are now actively investing in these funds.
Time is a key ingredient to investing which allows for compounding growth. Time lost is an erosion of value. Trump or no Trump, it is time to invest.
In this newsletter, we strive to deliver a simple message to help you understand the financial markets and your investments. We are humble enough to know that the financial markets and investing are extremely complex and prey on emotions. Our wealth management services are devoted to the task of building and protecting client wealth using rules-based, non-emotional tools and our experience.
As this bull market extends and stock valuations rise, the importance of being prepared and adaptive to negative trends also rises. We invite you to call or email anytime if you have questions about how we can help you with your wealth management. Please give us a call at (415) 249-6337 or email us at to learn more.info@uscapitalwm.com.
Summer Reading Suggestions and Gift Ideas for Dads and Grads
Black Flags: The Rise of Isis by Joby Warrick (2015)
Thrilling dramatic narrative of the roots of the Islamic State (ISIS). You fill it hard to put down. Winner of the Pulitzer Prize.
Season of the Witch: Enchantment, Terror, and Deliverance in the City of Love by David Talbot (2012)
Perfect read as we celebrate the 50th anniversary of the Summer of Love. Talbot recants some defining stories (the good, the bad and the tragic) of San Francisco from the 1960s to the 1980s.
Barbarian Days: A Surfing Life by William Finnegan (2015)
A great book to read any time of year, but only better in the summer dreaming of being out in the surf. Finnegan's descriptive narrative is breathtaking and his life-long passion takes you around the world to places only a surfboard can go. Pulitzer Prize winner.
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