Investing and Financial Planning in an Era of Uncertainty, Risk and Illusion

For anyone who’s managing their own investments, or who’s planning for eventual retirement, Robert Shiller made some important points in an article published last Thursday:

The closest we can come to Trump among former US presidents might be Calvin Coolidge, an extremely pro-business tax cutter. “The chief business of the American people is business,” Coolidge famously declared, while his treasury secretary, Andrew Mellon – one of America’s wealthiest men – advocated tax cuts for the rich, which would “trickle down” in benefits to the less fortunate.

The US economy during the Coolidge administration was very successful, but the boom ended badly in 1929, just after Coolidge stepped down, with the stock-market crash and the beginning of the Great Depression. During the 1930s, the 1920s were looked upon wistfully, but also as a time of fakery and cheating.

Of course, history is never destiny, and Coolidge is only one observation – hardly a solid basis for a forecast. Moreover, unlike Trump, both Coolidge and Mellon were levelheaded and temperate in their manner.

But add to the Trump effect all the attention paid to Dow 20,000, and we have the makings of a powerful illusion.

Not a day goes by that I don’t ponder what’s around the next corner (economically and financially). Or how investments and assets should be deployed and managed.

It seems a few things are indisputable:

  1. There is above-average uncertainty today.
  2. Risk is greater than acknowledged or priced into the market.
  3. Illusions are dangerous underpinnings for decision-making.
  4. Assets can lose value (for a long time or permanently).
  5. Our bias is optimism.

That’s life, Vera. Uncertainty. Risk. Illusions. Unknowns. Biases.

Plan accordingly. And choose wisely.

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