I was having a conversation with a young investor yesterday when I mentioned in passing my view that the latest clue that the market cycle is ending is when an enormous corporate tax cut became not a possibility, but a certainty, and share prices didn’t budge. In other words, the market had already fully priced in the special dividends and share buybacks we’ll see over the next year.
Then the investor asked me a question I wasn’t expecting: “So what should I do?”
“Do?” I replied, “What do you mean, do?”
“You just told me the market cycle is ending and we’re headed to a collapse, at least in share prices, and possibly in the whole economy. I’ve been living within my means and investing as much of my paycheck as possible for the last two years. You’re telling me that after all those sacrifices, my investments are about to go up in smoke. So what should I do?”
Maybe market timing is possible, but what makes you think you can do it?
Before deciding to time the market, you need to have reasonable confidence in two separate, independent propositions:
- It is possible to time the market. Using indicators either publicly (CAPE ratios, length of bull market, timing of Federal Reserve rate hikes) or privately (satellite imagery of parking lots, conversations with CEO’s, credit card transaction volume) available, a person is able to conclude whether the market is likelier to rise or fall in the proximate future.
- You are one of the people who can time the market. Once you have concluded market timing is possible, you then have to be sufficiently confident in a totally separate proposition: that you are one of the people who is able to properly synthesize public indicators or the specific private indicators you have access to in order to reach a correct conclusion about the direction of the market.
This calculus is easy for me. I do not have any confidence that market timing is possible, and I know for a fact that I, personally, am incapable of market timing.
The only investment that matters is the investment in justice
I’m happy to tell you the same thing I told that young investor: how much you save, and the performance of the markets between now and when you start drawing on your savings, may affect the neighborhood you can afford to retire in, it may affect the car you can afford to drive, and it may affect the amount of money you’ll have left to pass on to your favorite children, relatives, churches, or charities.
But there’s no amount of personal virtue, self-deprivation, market performance, or astute asset allocation that can pay for a serious medical emergency, a chronic disease, or a decade or more in a dedicated nursing facility. The amounts of money involved are simply different orders of magnitude.
I save a high percentage of my income. I invest in a very aggressive portfolio of global equities. But I don’t think for a moment that I’ll ever have enough money to pay for treatment for pancreatic cancer out of pocket.
And yet, while I don’t have any interest in contracting pancreatic cancer, I don’t think pancreatic cancer would render me homeless, dying on the street as the cancer consumes my body. How is that possible? It’s possible because we have begun, as a nation, to work towards universal access to affordable, comprehensive health insurance. We haven’t taken the straight path, but we’ve taken many steps along the winding path to universal coverage.
And that’s why I say the only investment that matters is the investment in justice.
When you register to vote, when you vote, and especially when you help others to vote, you are investing in your future in a way that a low-cost index fund will never provide — no matter how well it performs. When you contact your representatives to oppose cuts to Medicaid, Medicare, and SNAP, when you demand that CHIP be funded before millions of children lose access to healthcare, when you rally against Social Security privatization, you are securing your own future and the future of the nation in a way that a diversified portfolio does not and never will.
Conclusion
The fact that we denominate even unpayable expenses in dollars leads to a kind of category confusion, whereby people come to think that if they have “enough” money they’ll be able to escape financial hardship. But the only protection any of us have is in our mutual and collective support for one another.
The work you do to create a just society is the best investment you’ll ever make.
amazing post. Think you could send it to the President?
A deadly choice of cancers. Pancreatic cancer is almost always caught late and kills most subjects within a year of diagnosis. Very few (5%) are successfully treated.
With that said, the most important long term investment is in your health. Eat moderately and exercise some. Don’t drink or do drugs.
amen
You picked a very specific illness that will hit a sore spot with some readers.
Nun,
Why would it hit a sore spot? I’m saying people suffering from disease should be provided with affordable comprehensive healthcare. Are there diseases that are more and less upsetting for those suffering from them?
—Indy
Great post. Thanks for it.
Excellent post. Nice to provide a broad context in which to understand subsequent financial choices.
So..because you choose not to have a job and are unable to afford treatment for hypothetical pancreatic cancer, you think the government should force other hardworking people to pay for your laziness/misfortune?
I’m sure you pay for many luxuries where the money would be better off invested to earn a return to pay for your potential healthcare expenses. Just as I see many people on SNAP buying lottery tickets and cigarettes.
It is not anyone else’s job to take care of you. It is your own.
This is not a rational response. The cost of treating even minor ailments far exceeds the costs of many ordinary expenses. We are currently spending almost the same amount of money on health insurance as we are putting into fully funding an IRA. With full voverage health insurance, i had a $5000 co-pay for an hour and a half minor shoulder surgery. The hospital bill alone was $21000. And of couse that figure was not available to me prior to the surgery. This has ZERO to do with not having a job. We are running as fast as humanly possible. Indy Finance’s point is well taken. No one is immune from potential crisis.
Classic zombie right-wing comment. Your parents are on Medicare and don’t have to pay for their healthcare and are “forcing other hardworking people to pay for their laziness.”
Great post, thanks!
Great post!