Fix It Friday Ep. 35 - The Two Fears That Never Go Away — And Why They’re Usually Misplaced

• Recession predictions are constant, but actual recessions are relatively rare.

• Markets often recover before economic data confirms a recession is over.

• Inflation steadily erodes purchasing power and represents a long-term financial challenges'

• Equities have historically outpaced inflation and helped investors grow wealth over time.

• Volatility is uncomfortable, but it is not the same as risk.

Disclaimer: [00:00:00] The following podcast by Fusion Family Wealth, LLC, Fusion, is intended for general information purposes only. No [00:00:05] portion of the podcast serves as the receipt of, or as a substitute for, personalized investment advice from Fusion or any other investment professional of your choosing. [00:00:10] Please see additional important disclosure at the end of this podcast.

A copy of Fusion's current written disclosure brochure discussing our advisory [00:00:15] services and fees is available upon request or at www.fusionfamilywealth.com.

Jonathan Blau: Hello, and [00:00:20] welcome to another episode of the Fix it Friday edition of the Crazy Wealthy podcast. [00:00:25] Today, I'm gonna talk about two fears that never seem to go away and [00:00:30] why they're usually wrong.

So let's kick it off. Today, I'll say that if you've [00:00:35] felt as an investor, or as a human being really, it doesn't matter, like the world has been [00:00:40] spinning a little bit faster lately with geopolitics, markets, AI, [00:00:45] h-headlines, and constant predictions of an impending recession, [00:00:50] along with headlines predicting the, the impending death of the dollar.

[00:00:55] These are not things you're imagining. Th-these are reported almost daily, and the reason is [00:01:00] chaos sells. Fear gets clicks, and the media is not in the business of [00:01:05] educating us, uh, us, as I've talked about many times. They're in the business of maximizing ad [00:01:10] revenues for their, uh, parent companies, and the way they do that is to get us to click.

[00:01:15] They call the, those kinds of stories clickbait, get us to click and increase the [00:01:20] ad revenues because of the increased clicks[00:01:25]

Voiceover: Welcome to the Crazy Wealthy Podcast with your host, [00:01:30] Jonathan Blau. Whether you're just starting out or are an experienced investor, [00:01:35] join Jonathan as he seeks to illuminate and demystify the complexities [00:01:40] of making consistently rational financial decisions under conditions of uncertainty. [00:01:45] He'll chat with professionals from the advice world, entrepreneurs, executives, [00:01:50] and more to share fresh perspectives on making sound decisions that maximize [00:01:55] your wealth.

And now, here's your host [00:02:00]

Jonathan Blau: So two financial fears in particular I want to hone in to, on today [00:02:05] that never seem to disappear. The first is a recession is right [00:02:10] around the corner. Incidentally, the, uh, industry, the financial industry and the media [00:02:15] have predicting a recession since about, uh, first quarter of twenty twenty-two [00:02:20] when Russia was, w- invaded Ukraine and the price of oil shot up, and they're still predicting [00:02:25] it.

So it's going on four years now. I call it the Godot recession because we're still [00:02:30] waiting for it, and we may be for a long time. We may not be, but the point is nobody [00:02:35] knows when a recession is coming or when it's leaving. So first is recession's right [00:02:40] around the corner, and the, the second fear is the dollar is falling [00:02:45] Here's the fix.

Let's start with recessions. If you listened to forecasts over the last [00:02:50] twenty-plus years, you would think that we're constantly on the verge of an economic [00:02:55] collapse. Since the early 2000s, the fact is that the US economy has [00:03:00] actually spent very little time in recession. Recession predictions are [00:03:05] constant.

Recessions themselves are very rare. More importantly, markets don't wait for [00:03:10] recessions to end before they recover. By the time we hear a recession has been officially [00:03:15] declared, markets have often already moved on. That's why building portfolios around [00:03:20] recessions and recession forecasts almost always leads to poor outcomes.[00:03:25]

Not because they don't happen, but because they're completely unpredictable, both the [00:03:30] onset of them and how the market will react when the market will reflect the onset of the [00:03:35] recession, and then the disappearance or exit of the recession and when the market will reflect [00:03:40] that. We can't know any of those four things, whether we're in a recession, when the market reflects it, whether we're [00:03:45] out of one, when the market reflects that.

Because we can't know any of those four things, we [00:03:50] can't possibly marry an investment plan to the, the prediction of a recession. [00:03:55] And so let's talk now about the dollar. Often we hear that the dollar is [00:04:00] dying or about to lose its place in the world as the reserve currency. But here's what actually matters [00:04:05] to investors in real life.

Not whether the dollar is about to collapse overnight, but [00:04:10] whether it's quietly losing purchasing power over time, meaning inflation [00:04:15] is eating away to the tune of at least three percent a year to the value of each dollar that we own. [00:04:20] And that part is true. Cash loses purchasing power. That's inflation.

That [00:04:25] leads to the most important point. Stocks are not the problem here. They [00:04:30] are the solution. In fact, one of the best historical solutions to [00:04:35] fight inflation. In my lifetime alone, the value of the companies in the S&P [00:04:40] five hundred, without talking about dividends, is up eighty times. In that [00:04:45] same period, I'm almost sixty years old, inflation is up ten times.

So we [00:04:50] need today ten dollars to buy what every dollar bought when I was born. But if we invested in the [00:04:55] S&P five hundred, we have eighty dollars, not just ten. So we didn't just fight [00:05:00] inflation with equities, we trounced it. We increased our standard of living eight times. And by the [00:05:05] way, dividends are up almost thirty times.

So the cash dividends that we [00:05:10] get from the S&P five hundred since I was born gone up thirtyfold. So I [00:05:15] haven't, again, kept up with inflation on a cash flow from my stock investments basis. [00:05:20] I've increased my ability to spend cash flow to-- on my standard of [00:05:25] living by three times inflation. Dividends up thirty times, inflation up [00:05:30] ten times.

So over long periods of time, ownership of great companies has [00:05:35] been the most effective way, uh, people protect their purchasing power that I've seen. [00:05:40] While the dollar slowly erodes and loses its purchasing power, [00:05:45] businesses, great businesses adapt. They raise their prices, they grow earnings, and they [00:05:50] compound value and continue to innovate.

This is why long-term equity [00:05:55] ownership has historically outpaced inflation by, in many cases, an order of [00:06:00] multiple magnitudes. So what's the real mistake investors make during moments like this? [00:06:05] They try to turn fear into action. They change their long-term portfolio [00:06:10] strategies designed to give them the highest probability of meeting their objectives into [00:06:15] reactionary portfolios that reflect the current event of today.

They react to the headlines. They [00:06:20] confuse uncertainty with danger. So what I mean by that is the [00:06:25] entire world of US investors has been miseducated, in my view, by [00:06:30] our industry, the wealth management industry, to define risk in terms of [00:06:35] up and down temporary movements or volatility. And volatility is no [00:06:40] question uncomfortable, but don't conflate discomfort [00:06:45] with danger.

Volatility is not something that poses a danger [00:06:50] to succeeding with our long-term financial plans. What poses the [00:06:55] danger is the fears that are catalyzed when volatility approaches [00:07:00] and the behaviors that are catalyzed by those fears. Which is why Fusion [00:07:05] has be-- decided to become a specialist in behavior.

Because volatility isn't the [00:07:10] enemy, the behavior in response to volatility is the enemy. The permanent [00:07:15] enemy is inflation, though, because it's not temporary. It's the quiet eating away to the tune [00:07:20] of at least three percent a year of the value of every dollar. So long-term [00:07:25] investing wasn't ever meant to feel comfortable.

Volatility is not a sign that something is [00:07:30] broken. It's the price of admission for compounding. In the case of equities or [00:07:35] stocks, the S&P five hundred for the last hundred years after inflation has compounded [00:07:40] at seven percent a year, while bonds have compounded at three percent a year. So the [00:07:45] price of admission for those superior long-term results is to put up [00:07:50] emotionally with the temporarily-- temporary up and down movements.

So the Fix It [00:07:55] Friday takeaway today is simple. We don't build portfolios around recession [00:08:00] predictions or currency panic. We build them around long-term goals, [00:08:05] disciplined planning, and the understanding that perceived uncertainty is normal [00:08:10] and temporary. Fear comes and goes, markets endure, [00:08:15] and patience is still the most underrated asset an investor [00:08:20] owns.

Thanks for tuning in to today's Fix It Friday. You can catch us on, uh, all your favorite [00:08:25] podcast venues, as well as crazywealthypodcast.com and [00:08:30] our website, fusionfamilywealth.com.[00:08:35]

Voiceover: Thank you for tuning in to another episode of the Crazy Wealthy Podcast. [00:08:40] For more insights, resources, and to sign up for our newsletter, visit [00:08:45] crazywealthypodcast.com. Until then, stay crazy wealthy[00:08:50] [00:08:55]

Disclaimer: The previous podcast by Fusion Family Wealth, LLC, Fusion, was intended for general information purposes only. No portion of the [00:09:00] podcast serves as the receipt of, or as a substitute for, personalized investment advice from Fusion or any other investment professional of your choosing. [00:09:05] Different types of investments involve varying degrees of risk, and it should not be assumed that future performance of any specific investment or investment strategy [00:09:10] or any non-investment related or planning services, discussion, or content will be profitable, be suitable for your portfolio or individual situation.

Neither Fusion's [00:09:15] investment advisor registration status nor any amount of prior experience or success should be construed that a certain level of results or [00:09:20] satisfaction will be achieved if Fusion is engaged or continues to be engaged to provide investment advisory services. Fusion is neither a law firm nor accounting firm, [00:09:25] and no portion of its services should be construed as legal or accounting advice.

No portion of the video content should be construed by a client or prospective client [00:09:30] as a guarantee that he or she will experience a certain level of results if Fusion is engaged or continues to be engaged to provide investment advisory [00:09:35] services. A copy of Fusion's current written disclosure brochure discussing our advisory services and fees is available upon request or at [00:09:40] www.fusionfamilywealth.com.