November 2016 Update From Our CEO

A word of advice: don’t use your retirement portfolio to predict the future. This month provided a case study as to why. Better to keep contributing to your retirement and stay invested through rain and shine. And that includes through changes in who is running the country. Not only were the vast majority of predictions about who would win the presidency incorrect, so too was the conventional wisdom about the impact of the election on financial markets. We dig in below about the difficulty and folly of predicting the future.

We Might Not Live As Long As We Thought

After decades of underestimating increases in lifespans, the reverse now appears to be happening. The Society of Actuaries (the folks that gauge mortality for a living) recently reduced their prediction of life spans for Americans. The culprit? It appears to be increases in drug overdoses, suicide, alcohol poisoning, and liver disease that are having outsized effects on non-Hispanic whites. Careful to not interpret this too broadly. The average life span might be declining, but for those experiencing a rising standard of living who are in good health, life expectancies will continue to go up. Read more in Bloomberg.

What Will A Trump Presidency Mean For Your Retirement?

There’s a lot that could be in play with the change in presidents. Markets now expect fiscal policy to be more loose, which may lead to higher inflation (but also higher growth and higher interest rates). The so-called Fiduciary Rule could be rolled back, which I believe would be an unfortunate setback for savers who rely on financial advisors for advice. On the positive side, changes that make it easier to turn your 401(k) into a retirement paycheck are expected to pass in the new Congress. And as for Social Security and Medicare? There wasn’t much discussion about fixing these two entitlement programs during the campaign. This might mean, unfortunately, that the can will be kicked down the road for at least another 4 years. Read more in The Wall Street Journal.

The World’s Oldest Person Turns 117

Emma Morano lives in the northern Italian village of Pallanza. One of the more notable aspects of her diet? She eats three raw eggs every day. Does that mean you should? Maybe, but maybe not. Read more in The New York Times.

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Closing Thoughts

There used to be a tradition when financial reporters would write or talk about what happened in the stock market in a given day. It went something like this: “The Dow Jones Industrial Average gained 1% on the news that Boeing had signed a contract for 30 747s with Japanese airline ANA.”

The problem with headlines like this? They often aren’t accurate. On any given day, millions of things happen that impact the value of a stock market index’s component parts. Maybe Boeing also released better than expected earnings. Or a large mutual fund added Boeing to their portfolio. Or a hedge fund manager announced he’d ended his short position in the stock.

And some of what happens in the market is just pure, inexplicable randomness.

As any good student of statistics will tell you, there’s a difference between correlation and causation. Misinterpreting correlation (two things happened together) as causation (one thing happened because of the other thing) is dangerous.

So why does this matter? Conventional wisdom was that if the Democratic candidate won the presidency, the market’s value would increase by as much as 12% and a sell-off would occur if the Republican candidate won. The reality, as we know now with hindsight, was quite different. Donald Trump won and November has been one of the best-ever months for stock market investors.

The takeaway? It can be a fool’s errand to predict how the market will respond to a particular event. You need to both predict a given event and the market’s reaction to it to win a stock market gamble. Moving money out of the market into cash on election night would have been an expensive decision. Better to think long-term and ensure your portfolio is battle-tested to sustain times of uncertainty.

And now a pertinent quote from the Michael Lewis book Liar’s Poker:

“Most of the time when markets move, no one has any idea why. A man who can tell a good story can make a good living as a broker. It was the job of people like me to make up reasons, to spin a plausible yarn. And it’s amazing what people will believe.”

To Your Continued Longevity,

Matt Carey
Co-Founder & CEO

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