From TFO Phoenix - The Last Decade

Dear Friends,

As we get used to writing our dates with a “20” at the end, most of us have probably paused at least once to think about what our lives and the world around us might be like 10 years from now.  But before you spend much time mulling over the future of our world or the financial markets, I think it’s instructive to first look back at the past decade.  Ten years ago, as we celebrated the new year of 2010, would any of us have believed that:

  • People around the world would feel totally comfortable using their cell phone to contact a total stranger, jumping into that stranger’s car and trusting them to drive us to wherever we want to go? All without having to utter a word to each other and without needing currency or credit card in our pocket (Uber, or “Uber Taxi” as it was originally known, wasn’t founded until April 2010)?
  • Businessman and reality-TV star Donald Trump, who posted his first tweet just seven months prior in May 2009 (to promote his upcoming appearance on the David Letterman Show), would tweet over 11,000 times in the following decade, and would do so not to promote a TV show, but as President of the United States?
  • The New York Yankees baseball team, having played in four World Series championships and winning two of them in the 2000s decade, would not play in a single World Series over the following 10 years?
  • Over one billion people around the world would be actively posting pictures and writing captions on a not-yet-created social media site called Instagram (founded in 2010), and popular posters on the site would be so coveted by marketers that a new title of “influencer” would be created?
  • A relatively new Canadian women’s apparel company (Lululemon) would sell so many $98 yoga tights, and create such a cult-like following amongst trend-following urbanites that a new word would enter the fashion lexicon:
  • Lance Armstrong, cancer survivor, winner of seven consecutive Tour de France titles, and subject of perhaps the greatest American feel-good story of modern day, would be found guilty of doping and stripped of all his accomplishments?
  • The HBO hit TV series The Sopranos, which averaged over 18 million viewers in its peak season of 2002, would have its record-setting popularity surpassed by a medieval fantasy epic called Game of Thrones?
  • A half-computer, half-phone device called the iPad (not in existence when the decade began) would create an entire new category of mobile devices known as “tablets” and that by 2019 52% of U.S. adults would own a tablet?
  • Golf legend Tiger Woods, winner of 14 major golf championships over the previous 15 years, would only win one “major” in the 2010s, and that win wouldn’t come until 2019?

 

The surprises that investors witnessed in the financial markets over the past decade were no less startling:

  • There were no U.S. recessions in the decade, something that had never happened in a calendar decade since the National Bureau of Economic Research began tracking the U.S. business cycles in 1854.
  • Year-by-year inflation never topped 4%. When the Federal Reserve began its Quantitative Easing policy in 2009, many speculators foretold stories of rampant inflation, even hyperinflation, that didn’t materialize in the following decade.
  • Yields on 10-Year U.S. Treasuries, which many pundits expected to skyrocket after the Great Financial Crisis of 2007-2009, reached 4% in April 2010 but never touched that level again, closing the decade at 1.9%.
  • After producing a dismal -9% return during the entire “lost decade” of 2000-2009, the S&P 500 Index rebounded with a 257% cumulative total return (with dividends reinvested) from 2010-2019. Not surprisingly, the more diversified global stock market provided investors with smoother returns, with a 9% gain in 2000-2009 followed by a 145% total return over the following 10 years.
  • At the end of 2019, several developed countries around the globe were paying investors interest rates of less than 1% on 10-year bonds and Japanese, Dutch, German and Swiss investors were actually paying their respective governments (in the form of negative interest rates) to lend their assets to their government for the next 10 years.

 

Based on the evidence above, it seems likely that the world will continue to be surprised by events in the decade to come.  Unfortunately, science tells us that uncertainty is highly stressful for all people.  In fact, researchers have shown that uncertainty is so stressful that people feel more stress about uncertain situations than we do about predictable negative events (e.g. the fear of possibly being fired from a job is more stressful than actually getting fired).  As a result, it is hard to fight against our natural, but incorrect, tendency to believe forecasters can accurately predict the future.

 

When we feel the inevitable anxiety about uncertainty creeping into our financial affairs, we should remember that we are not simply helpless sailors letting our financial craft drift on the random currents of the markets.  We can focus our thoughts and actions on five important elements of our respective financial futures that each of us controls:

  1. How much we spend/save
  2. How broadly we diversify our investments
  3. How much risk we choose to take
  4. How much we pay in fees and, to a lesser degree, taxes
  5. How we behave in times of stress

 

We hope 2020 and the decade beyond brings you and your family happiness, joy and prosperity.  As always, please feel free to contact any member of your TFO team if you have questions.

Happy New Year.

 

Sincerely,

CHUCK CARROLL, CFA, CAIA
CHIEF INVESTMENT OFFICER
TFO PHOENIX, INC.

TFO Phoenix, Inc. is registered as an investment adviser with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.

Colleague work-from-home policy

03/16/2020 - Two of our core values at TFO Phoenix are "Care" and "Do The Right Thing". One of the best ways we can live those values today is to keep our team safe and healthy so we can continue to help clients through these unusual times. To that end, TFO Phoenix will be implementing a work-from-home policy until at least March 31. Over the past several years TFO Phoenix has invested heavily in technology and processes designed to allow our people to serve clients effectively no matter where we are located. This will continue to provide our people with full access to all of our firm's human and technological resources while they are working from home. As a result, we fully expect to serve our clients seamlessly during this period. If you have any questions about this policy, please do not hesitate to call or email your TFO team directly.