Annual Letter From James
The information fog that permeated everything in 2020 underscored the fallacy of relying upon predictions and prognostications. Life constantly changes and the ability to adapt and adjust is a necessary survival skill.
FIVE GUIDING PRINCIPLES FOR 2021
The First Principle that stands above all others is reflected in this quote from author Nick Murray: “Optimism is the only realism.” Understandably, the pandemic year fueled pessimistic thoughts but only optimism is a rational basis for investing, planning, and problem solving.
While we crave certainty and security, the future is unknowable. Principle Two for 2021 is to focus on your adaptive strength. Willingness to adapt with current reality can become the raw material behind creating a stronger sense of security.
Principle Three is closely related to Principle Two. Solving financial problems requires letting go of precision. Investment returns, retirement timeframes, taxes, and politics are all imprecise and outside your control. Don’t worship the false god of precision.
Principle Four ties in directly to the master class tutorial provided by the investment markets in 2020. To wit, despite a market decline of almost one-third from mid February-March, the broad U.S. stock market provided a total return for the year of more than 18% (almost 2x the average historic annual return dating back to 1926). At their most dramatic turning points, markets can’t be forecast or timed.
Last but not least, Principle Five is to recognize that long lasting financial progress is the byproduct of a commitment to a process without regard for today’s outcome; a commitment to the journey.
THEMES FOR 2021
Reality based planning and problem solving isn’t concerned with short-term market volatility. Financial markets are always noisy. It’s more important than ever to ignore the noise and instead act on your particular planning objectives.
We should certainly pull forward into this year what we learned last year about surprises as a theme for 2021. The world is always surprising. 2020 brought us the troubling surprise of COVID-19 but also provided a positive surprise in terms of market performance. Surprises, both positive and negative will continue to occur and no one can predict these surprises in advance.
Another primary theme for 2021 is to steadfastly avoid looking at your financial life only through the lens of investment returns.
Finally, it’s important to remember to avoid letting your politics get mixed up with your investment decisions.
2021 provides goal focused investors a fresh opportunity to take positive steps in the direction of your personal planning objectives. Not certainty, just opportunity. Have a happy and healthy 2021!
James E. Wilson, CFP®