The Certainty of Uncertainty

The ever quotable Yogi Berra, who brought us such philosophical gems as “when you come to a fork in the road, take it,” and “you can observe a lot just by watching,” is also credited with the insightful idiom that “predictions are difficult, especially when they’re about the future.” This difficulty in predicting the future is what economists refer to as uncertainty. While nothing new, uncertainty and the potentially crippling fear over an uncertain world have fooled many investors into losing sight of their long-term financial goals. Behavioral finance tells us that we are ill equipped to deal with uncertainty, and panicked, short-term decision making can ruin even the best laid financial plans. Unfortunately, like death and taxes, uncertainty is an unavoidable part of life. The acceptance of the certainty of uncertainty defines successful investors by removing emotion from the equation and allowing prudent, goal-based financial planning to take center stage.

If peace of mind is the foundation of prosperity, I would wager that fear of uncertainty is the precursor to panic. With many investors currently unsettled by the escalating talk of a trade war with China, increasing recessionary risks, global debt imbalances, and the potential for geopolitical events, it often seems that a new crisis is only as far away as the next headline. Often to boost ratings, the media hoists bricks on top of the already high wall of worry. However, it is important to remember that economic uncertainty — and its accompanying effects on our emotional sense of security and well-being — are nothing new.

The certainty of uncertainty has been present throughout history, and it is readily apparent by a look back through the decades. A decade ago we were near the depths of the financial meltdown and worst recession since the Great Depression. Before that and near the turn of the century, we staggered through the dot-com bubble bursting as $5 trillion in market value vanished and the NASDAQ had suffered a 78% peak to trough drop. A decade before that in the early 1990’s, the savings and loan crisis witnessed the failure of close to one-fourth of our savings and loan institutions. In the early 1980’s, inflation soared to all-time highs, mortgage rates approached 20%, investors faced crushing 70% tax brackets, and the price of gold leapfrogged daily. Ten years earlier in the 1970’s, economic security seemed an elusive if not an impossible dream, as the prime rate hit 10%, we were saddled with Watergate, and an oil crisis caused rationing lines at gas stations. The early 1960’s made a nuclear holocaust seem at least possible, if not imminent, as Khrushchev’s vow to “bury” the US turned into the horror of the Cuban missile crisis (not to mention Vietnam lay just around the corner). In the early 1950’s, the spread of communism and the Korean War helped bomb shelters become a best-selling item in the US. In early the 1940’s, the shadow of Pearl Harbor ushered us into World War II, and in the 1930’s we awoke to the nightmare of the Great Depression. And on and on….

The point is that uncertainty is always present. However, proper planning and preparation can help provide peace of mind and financial security to weather the economic storms of today as well as those in the far-off financial future. If an investor had let fear and uncertainty impede them from pursuing their financial goals, they may have failed to participate in the close to 367,000% market gain that accompanied the above decades of uncertainty. What this means in dollar terms is that an investment of $10,000 in the stock market made prior to the great depression would have grown to almost $37 million today.

As Yogi Berra said, “the future isn’t what it used to be.” The wall of worry perpetuated by our 24-hour news cycle seems to be growing, but when filtered through a historical lens, a high wall (meaning the market is focused on uncertainty) certainly is nothing new. Purposeful financial planning can guard against ill advised, fear-based decision making – regardless if it’s fear of the unknown or fear of missing an opportunity.

Greenleaf Trust prides itself in helping to provide financial security from generation to generation for people who want assistance in taking pro-active and prudent control of their wealth. This means listening, guiding, educating, and serving our clients in a manner that is meaningful on a personal level and results in highly customized financial solutions. We take the time to understand each investor’s unique situation, define financial goals, develop a customized wealth management plan as an initial roadmap, and continually sit down with individuals to monitor progress. The certainty of uncertainty isn’t going away. By developing a personalized financial plan built upon a firm foundation of proper planning, tax minimization, diversification, risk management, and an appropriate asset allocation, you can mitigate the fear and emotional turmoil that often accompany uncertainty in order to achieve financial security and peace of mind.