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1Q18 Quarterly Investment Letter

Now that volatility has returned to the market things look more normal to us. For a few years prior to 2018, volatility was less than normal and since January it has been greater than normal.

 First quarter returns were:

On average I would say it has been about what we would expect. 

However human beings are highly emotional creatures. We tend not to normalize our reactions to averages.  Rather we react to extremes.  That is unfortunate because it “reduces” our ability to become financially secure through wealth accumulation.  Extreme conditions frequently drive our decisions.   Over-confidence [greed] dominates when the market is going up and fear takes over when the market goes down.

Think about this for a minute.  What if someone invested $1 for you in 1939 and said the investment’s entire value would be paid to you in 2018. At the end of the investment period [78 years], you would choose from among the following categories and receive its value:

Small Cap Stocks
Large Cap Stock
Government Bonds
Treasury Bills

How would you choose?  Study the following chart:

No matter how many times I see charts showing the “magic” of compound returns to achieve long term growth and financial security, I am still amazed.

Why is something so easy to understand so seemingly impossible to achieve?  The answer is an easy one.  We mentioned emotion already.  Fear when the market declines will erode confidence and results in selling instead of buying.  When the market does well, instead of prudently buying and steady investing, greed with visions of outsized returns consumes psyches.  Extreme overconfidence is the result. People invest too much believing returns are almost “guaranteed”.  Then they panic when the market declines realizing they have taken on too much risk.

The net result is buying high and selling low.  It is the “sure fire” formula for investment failure. Otherwise we would all be rich… or would we?

There is another “culprit” lurking.  It is consumption.  Actually consumption might be the biggest factor preventing financial security. Obviously without savings there can be no investment. 

Most people I know admit they could have saved and invested more had it not been for their compulsion to spend.

Stop and think how much money could have been invested had each purchase been reduced by 10% with the balance invested.  Instead of buying a house for $300,000, one was purchased for $270,000.  The car that cost $40,000 was rejected and one that cost $36,000 was purchased. The future value of those missed opportunities for investment is mind boggling. 

Then there is one other factor that jeopardizes accumulating future wealth needed to attain financial security and that is impatience.

Now study a chart showing returns over a 20 year period:

While not as impressive as the chart dating from 1939, Small Cap stocks were still up 12.1% and large cap stocks were up 10.5%. A dollar invested in them would be worth $9.80 and $7.40 twenty years later.

Treasury Bills kept pace with inflation while Government bonds were up 5.6%.  Please remember bond prices during those 20 years enjoyed the benefits of an unprecedented long bull market in bonds.

In spite of the financial crisis and the Great Recession spanning almost 10 years during the last twenty years, the results clearly show stocks dominated.  One dollar invested in 1997 grew by the end of 2017 to be worth:

Small Cap Stocks                  $9.80
Large Cap Stocks                  $7.40
Government Bonds               $3.00
Treasury Bills                       $1.50
$1 to match inflation           $1.50

Most relevant to our discussion is the second chart with a dollar in 1997 being invested. 

It demonstrates how things can seemingly be “awful” in the economy and politics but still money [lots of it] is being made by investors.  I would add prudent and long term investors have been rewarded.  Those who chose safe bonds and short term investments barely kept pace with inflation.

Conventional wisdom is the market has been good since 2009. For those who are patient and have the courage and conviction to stay the course, they have been rewarded.  Those who lack conviction and commitment usually do not because they are focused on short term events and news. Short term thinking frequently jeopardizes long term plans.

Most quarterly letters summarizing 2018’s first quarter will discuss what we already know.  The market was very volatile.  Trump seems to be a problem.  International relations are tense. Interest rates are uncertain and seem to be going up.

There really is nothing new.  Eventually the market will go down and those who do not believe will be right for a time. But if we have a really difficult time like most of us believe we experienced over the past 20 years, I guess that means we will have to be satisfied with only 10%or 12% over the next 20 years. 

Why is it important to “embrace” volatility?  The simple answer is we must if we are to achieve financial security.  Even in retirement investment needs to include asset classes that can grow significantly more than inflation must be part of the mix.  Of course there are rare exceptions. A few do have more money than they can spend and are in no danger of outliving their savings. 

Otherwise accumulating enough wealth to retire at age 65 and paying bills is daunting if not impossible.  A couple living and retiring at age 65 faces a high probability one will live into their mid-90’s.

To realistically understand what that requires means the following savings and investment would be required by a 45 year old to retire at age 65. For each $10,000 of retirement income assuming a 4% withdrawal rate, the future retiree would need to accumulate $250,000 in retirement accounts and personal investment.

With 20 years until retirement savings invested in the following would be required in annual savings assuming the past 20 years of market performance is attained.

Treasury Bills

Government Bonds

Large Cap Stocks

Small Cap Stocks





If you have wondered why I “preach” so much about “time and not timing” consider what happens if you begin 10 years sooner...  

The following would be required to reach $250,000.





A big criticism I have of financial services advice is little or no information is given about reducing volatility and its impact on future values.  Most understand lower returns imply less growth.  But very few people I speak to realize how much return is lost. The power of compounding returns is truly magical.  But it works best over the long term.  It absolutely requires discipline. There are “predators” like consumption, fear and greed lurking.  History indicates the “predators” are doing well.

Individual investors can succeed but never before have the challenges been greater nor the need for success been more important.

Curran Wealth Management is dedicated to working with our clients to achieve investment success with the reward being financial security.


Thomas J. Curran             Kevin T. Curran, CFA
Chief Executive Officer     CIO & Portfolio Manager 

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This material was prepared by or obtained from sources that CIM believes to be reliable, but CIM does not guarantee its accuracy. The securities identified do not represent all of the securities purchased, sold or recommended and the reader should not assume that any listed security was or will be profitable. Market indices referenced are unmanaged and representative of large and small domestic and international stocks and bonds, each with unique risks. Information about them is provided to illustrate market trends and does not represent the performance of any specific investment. You cannot invest directly in an index. Past performance cannot guarantee future results.