March 31, 2022
Article By Thomas Twombly, President
Artwork by Daisy Lopez, Staff Accountant

In our missive of last month, which was actually a re-publication of my President’s Message for our Q4 2021 Report – and therefore written before the Russian invasion of Ukraine – I encouraged our readers to take a long-range view and buckle your seat belts, because the intermediate term future for financial markets looked pretty bumpy to me.

For obvious reasons now, I feel compelled to reiterate that advice here – but I want to augment it with two very concrete examples of why taking the long view is so critical. One example is forward-looking and will impact millions of people. The other is lifted directly from a Quarterly Report of almost 20 years ago, which I wrote in October of 2002, and it is much more personal.

We’ll start with the forward view, and a very important statistic. Between January 1st and December 31st of this calendar year, more people will turn 65 in the United States than in any previous year in history. How do we know this? Because 1957, the absolute peak birth year for the so-called baby boom generation, saw 4.3 million new souls born in this country. That was an average of 11,780 births per day. Now, in 2022, those same folks are turning 65. (If that’s not enough, this wave will continue for another seven years, because the annual birth rate didn’t drop back below 4 million per year until 1965.)

Last week I received a copy of the 2022 edition of the Guide to Retirement, from J.P. Morgan Asset Management, the source of some of the most useful data and research materials I have found. Here is a slide from that deck that everyone should ponder, whether you’re 65 years old now, or whether you’re 35 and your parents are 65, or whether you’re 85 and your kids are closing in on 65. Irrespective of whether it’s you, or someone you care about deeply, the long-term planning and investment implications are profound.

What should be especially sobering to anyone who takes pride in their health and well-being (and most of us either writing or reading this particular newsletter do) are the uppermost segments of each of the vertical bars here. They represent the probability of reaching what used to be called “an advanced age” for men, women, and couples currently aged 65 who are non-smokers in good health. I’ll let you study this chart in detail yourself. But let me quickly call your attention to just the dark blue bars, which depict the probability that at least one individual out of such a couple will live to age 85, 90, 95, or 100.

If you, or someone you know and love, is a member of such a couple now, there is an almost 90% chance that at least one of you will live to age 85. There’s a 72% chance that at least one of you will see 90. And there’s a 44% chance that at least one of you will live to celebrate your 95th birthday! That’s potentially 30 years of retirement to fund. (Ask yourself: if there were “only” a 44% chance of rain today, would I confidently go forward with an outdoor wedding?)

Now ponder this: if, over the course of the next three decades, we were to experience an average annual inflation rate of just 3% (which is close to the average we’ve seen in this country over the last 100 years) 65-year-old folks who live to 90 will see their cost of living double. And if inflation ends up being higher, and/or if they are fortunate enough to live longer, they could see it triple, or more…

Now permit me to turn and look backwards and share verbatim my message of almost 20 years ago, which, with time, has become an even more powerful story. I wrote it about 13 months after 9-11, and a year after the sudden collapse of Enron – once the 5th largest company in the S&P 500, and the pride of Houston, TX – due to massive accounting fraud. It was a dire time in US economic history when the S&P 500 was well on its way to what turned out to be a 45% decline, and when the NASDAQ technology index was on its way to a truly stunning 80% collapse. In it, I recounted a conversation I had recently had with my mother. Please read it below. Importantly, you should know that she will turn 86 this summer, three months after my father turns 87. They are both going strong, and they’re still some of my favorite clients.

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Not long ago I was speaking to one of my favorite clients (she’ll recognize who she is) about the importance of remaining poised and keeping a long-term focus, especially when it seems most difficult. She immediately said “Thomas, I’m 65 years old! I don’t have a long term!” I know this is a common reaction, and at first glance an understandable one, so I thought I’d share with you the same story I shared with her.

A couple of years ago my great aunt moved to Austin in order to be closer to family. She was in her 90’s, recently widowed, and in need of round-the-clock care in order to live out her life safely and comfortably. The decision was made that she would move into a local retirement facility with pleasant surroundings, a large private room, and qualified medical professionals that could assist my family in making her life as comfortable as possible. The cost of this facility amounted to more than $70,000 per year – a lot of money, and certainly more than we would have been able to afford ourselves. It was possible because she had prepared well, had always focused on long-term goals as well as more immediate needs, and had refused to succumb to the panic of short-term market gyrations that threatened to derail her success. The quality of her life in the last few years was directly attributable to those decisions.

She had turned 65 in October of 1974, at a time when investment markets were in excruciating turmoil, and many were forecasting dire predictions for the American economy. During the eighteen months prior to her 65th birthday the S&P 500 had lost over 40% of its value as the Watergate scandal first rocked American’s faith in the integrity of our political system, and the OPEC oil embargo laid waste to the American economic system. Major periodicals were hailing the death of equity investing, and the general sense was that the United States had lost its ability to compete in a rapidly expanding and hostile global environment. The mood was dire, and thousands of Americans withdrew their money from stock markets, many never to return again. She didn’t make that mistake, even though it could have been argued that she didn’t have a long-term. Despite those gut-wrenching years, and despite substantial short-term losses, she maintained a long-term view and continued to invest in a broadly diversified investment portfolio that included the stocks of some of the best-run companies in the United States.

Eventually, her decisions paid off handsomely, and her investments grew far more substantially than if she had done as many others did and retreated only to fixed income investments like CD’s and bonds. As the following 2 ½ decades passed she experienced other sharp (and temporary) declines in years like 1987, 1991, 1994, and 1998, but she and her financial advisor continued to follow a strategy that balanced both the need for immediate retirement income and the need for long-term growth. The result was that she had more than enough to provide for a significant increase in her cost of living in a retirement that lasted more than 25 years.

None of us knows for sure just what the future holds, and in times of crisis it is far too easy to lose sight of the need to think long-term and adjust our plans and behaviors accordingly. But if history is any guide (and it is the only guide we have) we will see an end to this crisis, and hard-working, innovative, tenacious people and companies will find a way to succeed and prosper, no matter what the challenge. At its core, this is what investing is all about.

Thank you again for your continued confidence and trust. Thanks also for the many kind words of encouragement and support you have given to us in such challenging times. We really appreciate it.

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I don’t think I could do anything to improve upon that message now, other than to reiterate my deepest gratitude for the privilege of serving such great clients and friends.

Thomas Twombly
President