The Next New Normal Is On the Horizon, Ep #168

At the end of March 2020, the S&P 500 was down nearly 20%. The world was scrambling. Many experts hypothesized where we would be in the next year. Everyone had an opinion. But I do not remember anyone that said the S&P 500 would be up 56% over the next 12 months. No one could have predicted that.

David Booth wrote an article months ago about the “new normal.” He talked about expected market downturns a couple of times in a decade. When we have corrections, bear markets, and recessions—it is normal. We just do not know when they are coming. You cannot predict a crisis—but you can plan for it. So how do you do that? What is the next “new” normal? Listen to this episode of Best in Wealth to hear my thoughts!

Outline of This Episode

• [1:17] The importance of a calendar
• [6:33] What is the next normal?
• [12:00] The US Small Cap Value Fund
• [16:19] Sticking to a long-term investment plan
• [17:57] Are you investing—or gambling?
• [20:27] What is the next new normal?

The US Small Cap Value Fund

Smaller companies tend to do better over time. The expected return is higher. The US Small Value was down 39.02% at the end of March 2020. What happens when you look at a small value asset class and see that it is down that much? Most people make a change. People kept saying that “value was dead” and that you should get out. But that is not what a family steward does. Instead, we did some strategic rebalancing.

Instead of fleeing, we invested more money into that asset class. Why? Because we believe in long-term expected returns. We want to stay invested and stay in our lane. Fast-forward to March 31st, 2021. The US Small Value is up 112.09%. The Russell 2000 Value—the benchmark for this dimensional fund—had a gain of 97.05% but still nowhere near Dimensional’s. The S&P 500 was only up 25.71% overall.

Sticking to a long-term investment plan

Sticking to a long-term investment plan is not easy. But discipline and patience are necessary for a family steward. We were all stressed last March. We all felt pressure to make changes for the sake of reacting. People wanted to get out of the market to reduce uncertainty. But getting out of an asset class increases uncertainty. It forces you to choose the best time to get back in. There are people right now that got out of the market and are still sitting on the sidelines. I know people who pulled out during the 2008 recession who are still out of the market.

Are you investing—or gambling?

Many people who think they are investing are actually gambling. It is a simple distinction. If you are trying to time short-term market movements, you are gambling. Staying focused on a long-term strategy is hard work. It is not doing nothing. Short periods like the 1st quarter of 2020 are not signals of future performance. It is a reminder of how hard being a long-term investor can be.

If you are investing in all of the asset classes you should be in, you do not know when returns will show up. That is why you stick to your plan. Every financial crisis is different but the best way to deal with them is always the same. You can control your response to the crisis. Talk about this stuff when times are good so you are prepared when times are tough. The market will go up and down.

The new normal is expecting uncertainty and committing to a plan that addresses it. It is rising above the temptation to make changes when things get tough. It is understanding the difference between investing and gambling. It is remembering how good it feels when things work out. Make thoughtful planning your new normal. Need help doing that? Schedule a call with me!

Resources Mentioned

• Best in Wealth Episode #148
• Best in Wealth Episode #161
• The Next Normal by David Booth
• Dimensional US Small Cap Value

Connect With Scott Wellens

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Podcast Disclaimer:

The Best In Wealth Podcast is hosted by Scott Wellens. Scott Wellens is the principal at Fortress Planning Group. Fortress Planning Group is a registered investment advisory firm regulated by the Securities Act of Wisconsin in accordance and compliance with securities laws and regulations. Fortress Planning Group does not render or offer to render personalized investment or tax advice through the Best In Wealth Podcast. The information provided is for informational purposes only and does not constitute financial, tax, investment or legal advice.

About the author, Scott Wellens

Scott Wellens, CFP® is an investment advisor and founder of Fortress Planning Group. After earning his Bachelor of Science degree from the University of Wisconsin-Oshkosh, Scott quickly ascended to become a Vice President of North American Sales at a major regional provider of telecommunications infrastructure. While financially successful in this role, Scott searched for ways to pursue his passion related to financial literacy and providing financial freedom for both his own family and others. During his search, Scott became curious about the significant gap he found in the financial services sector: he was unable to find a comprehensive financial planner that maintained a family stewardship lens without being attached to financial products. Scott decided to fill that gap by creating his own planning firm that maintains a strong passion for comprehensive, unbiased wealth planning that is genuinely client-centered.

Scott resides in Menomonee Falls, WI with his family. He is the father of three active and independent daughters who keep him on his toes. Scott is an active community member, serving on the Hamilton Education Foundation Board, serves as a Dave Ramsey Financial Peace facilitator and leads the All Pro Dad’s group at their local elementary school. Scott enjoys spending his free time visiting state parks with his family, reading, and watching the Milwaukee Bucks and the Green Bay Packers win ball games.

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