Tales & Trails of a Traveling Wiseguy

Read almost any article about 401(k) retirement plans in the US and you'll see negatives in the story if not in the headline. Americans aren't taking advantage of their 401(k) plans, they're not saving enough in them, they're missing out on company matching funds, they're given weak investing choices or choose under-performing funds, etc. Using 401(k)s has never been an issue in our household; we've invested in them since we were first eligible. And for at least the past 15 years we've been saving robustly. But we're not all equally interested in spending time to figure out which funds to invest them money in. I enjoy that research; Hawk does not.

This issue came up again several weeks ago when we compiled an end-of-year checkpoint on all our assets. Hawk noted, "Uh-oh, I never figured out which fund to put my money in at my current employer." As she started there 3½ years ago I was worried, too, about money languishing in an under-performing fund.

Dealing with issue waited another few weeks. Again, while I'm always interested in doing financial research, Hawk hates it. And since it's her retirement money, her retirement account, I can't just do it for her. I can look over her shoulder and help out, but she's still got to allocate a modicum of time and energy for the task.

Long story short, it turns out there was no reason to worry. Her money (from this employer, at least) is invested in a good fund. And it didn't even take a lot of effort. It was like pressing the proverbial Easy Button.

Longer version of the story:

As I saw where her money was invested, in a T. Rowe Price Target Date fund, I recalled that our conversation 3½ years ago went something like:

Target Date funds aren't always the best choice. They're mixtures of basic stock index funds and bonds, with the ratio between the two weighting more heavily to bonds the nearer the target date. The ratios are too bond heavy for people in our situation. That's why I recommended she pick a target date 10-15 years later than what general advice recommends. But even with that, there's the problem that the underlying stock funds can be are average at best.

So Many Choices

Once Hawk logged in to her account I started looking through the investment choices to find something better than her Target Date fund. There were a lot of choices there; at least 20. I know that level of choice intimidates a lot of people. One of my own colleagues described throwing his hands up in exasperation at the 20+ choices in our company plan. He decided not to fund his 401(k) at all! The problem of too much choice being a bad thing is real.

In this case, though, the "easy button" choice of a Target Date fund turned out to be a good one. As I studied the performance statistics of the other fund choices over the past 1, 3, and 5 year intervals, I found that none of them beat her years-away Target Date fund.

Part of that I credit to the nature of the stock market the past few years. First, big growth stocks were frothy, so funds that invested in the few biggest names did well while others languished. Then, in the last month, the big growth names have taken a hit, so those once high-flying funds have come back down to earth. There's a bit of the "Slow and steady wins the race" lesson here.

The other part of the Target Date fund's victory I attribute to it being a T. Rowe Price fund. They have a very strong fund offering, with strong teams of researchers balancing return vs. risk of the stocks they pick. Not all Target Date funds are as good as theirs. I know in the past I've looked at Target Date funds in my plans and thought, "Meh."

My funds need a change!

Next, out of curiosity, I compared the Target Date fund Hawk is in to the best funds I'd already chosen in my 401(k) plan. That was an eye-opener, because I realized one of the 3 funds I've got my money in has performed poorly over the last 12 months! 😨 Comparing to the Target Date fund really highlighted that problem. One of the three clearly beats the Target Date fund, and the other was stronger than it for a few years but only neck-and-neck the past 12 months. I immediately moved my money out of the under-performer and into a new fund that's come on strong in the past year.

I spent over $20,000 shopping on Black Friday... but not on 4k QLED TVs, Amazon Dots, Apple earbuds, or any of the myriad other things advertised left, right, and center yesterday. I bought pieces of companies.

The stock markets were down on Friday. News about a new Coronavirus variant emerging raised fears of new rounds of lockdowns impinging consumer spending. Asian and European markets were down ahead of the opening of US markets at 9:30am EST. When US markets opened broad swaths of stocks were down by 3%, 4%, or more. Energy stocks were down 8% on fears that lockdowns would reduce travel and commerce.

Some people react to stock market downturns with dread. "Oh, no, how much money did I lose today?" I lost money Friday, in the sense that the market value of my portfolio decreased. It didn't bother me. I don't invest with the expectation of selling things the next day. (Some would argue that's not even investing but trading.) I buy stocks expecting to sell them anywhere from several months from now to a year or more, to possibly never. Thus when the market's down I look at it and think, "Woohoo! Stocks are on sale!"

Are we still in a recession? That question occurred to me recently. It's kind of surprising there hasn't been much about it either way in the news lately. On the one hand, parts of the economy have been doing quite well. Others... maybe not so much? It's unclear.

Clearly things were bad last year in the spring. The National Bureau of Economic Research (NBER) determined that the recession started in February 2020. They haven't said anything about when it has ended. I know; I checked.

While checking I found this Reuters article, "Is it over yet?" from a month ago (4 May 2021) stating, among other things, that yeah, the NBER is very cautious in declaring a beginning or end to things. Indeed, they only concluded in June that the recession had started in February. Even that four-month lag was quick compared to their past calls. It took them a year to determine that the Great Recession had started!

Okay, so if officials are only going to tell us officially when something is over when it's "No shit, Sherlock!" obvious, what can we figure for ourselves? Well, let's look at the stock market.



I obtained this chart from Yahoo! Finance showing the S&P 500 Index from November, 2019 to present. You can see the precipitous drop following a market high on Feb. 19. That's a key indicator, possibly the only key indicator, the NBER used to determine the beginning of the recession. Of course, by the time they figured that out in June, 2020, the market was already well on its way to a recovery. By August the market had already eclipsed its previous high (trace across the dotted line I provided) and has gone on to grow 20% beyond a full recovery.

So, by stock market indicators, the pandemic recession ended 10 months ago. For the rich the pain was short lived, and the rich are now richer than ever. As I've noted before, though, the market is not the economy. While the rich have done well, others may still suffer.

What's another indicator? How about unemployment. I looked up unemployment statistics and found this bare-bones but effective chart from the Bureau of Labor Statistics:



Unemployment hit a high of almost 15% in April, 2020. Since then it has recovered... but not to its pre-pandemic levels. In late 2019 unemployment stood at about 3.6%. Today it remains just above 6%. That's still a lot of people who aren't back to work yet. ...And coming out of recessions these figures are generally considered an under-count. That's because people who've been out of work long term and have given up looking for work are not counted in the statistic.

So, for the investor class, the recession ended months ago. For the working class, especially those working in sectors hard hit by shutdowns, we're not over it yet.


Take-home essay question: Why, when these charts took me less than a minute each to find, has there been so little coverage in the news?

Every year around the New Year I reflect upon the past 12 months. This year it's challenging to write about. I could just observe, for about the billionth time, that 2020 was a total dumpster fire and be done with it....



But to stop there would be taking the easy way out. Over the years I've found retrospective writing is helpful both to strengthen my own recollection years later as well as to structure and sharpen my thoughts in the present. Thus even though 2020 was a year almost anyone would be glad not just to close the book on but slam it shut, I'll write about it for better understanding.

A Singular Story Defines 2020

It turns out to have been ironic that the dumpster fire meme originated in 2016. The events of 2016 we all thought were so horrible were dwarfed by what would come four years later.

In the past I'd wondered if something could happen that's so overwhelming it's headline news in every category simultaneously— politics, money, health, life, entertainment, sports, etc. In 2020 exactly that happened.

I'm talking, of course, about Coronavirus. It's affected literally every aspect of human existence in 2020. And generally not for the better. 85 million people have been sickened worldwide and nearly 2 million have died (source: worldometer Covid-19 pandemic, retrieved 3 Jan 2021). Those figures are widely considered an undercount, BTW, especially the deaths figure. Billions of people have been under varying degrees of stay-home orders for the past 10 months, disrupting education and many sectors of the economy. Businesses are failing for lack of revenue and unemployment is markedly higher.

While it can be tempting to say, "2020 sucked because of Coronavirus" and leave it at that, that's oversimplifying it. When I write these year-end retrospectives I like to examine the year through different lenses. ...Even if, for 2020, all of those lenses have been tinted by this one story.

Personal

For myself and for my immediate family the story of 2020 can be summarized by three terms: Adapting, Making Do, and On Hold. We've adapted fairly well to the changes required by the global pandemic. My job was already largely work-from-home; now it's 100% WFH. Our habits of eating out frequently were surprisingly easy to change to cooking at home 90%+. We're traveling way less, which is a disappointment. Health-wise we've avoided Coronavirus.

Jobs

My job situation has been "meh" overall. In April I had a 10% involuntary pay cut that was restored in August. But hey, at least I've had a job consistently. That's more than I can say for some people. Too bad my job's still pretty much a dead-end job. But hey, at least it's a fairly well paying job.

Hawk's job situation is going better than mine. She had no pay cut or furlough this year. A promotion she was angling for a year ago didn't materialize, but she may have another chance this coming year. At least her executives support the idea that she's on a growth path.

Family

I was about to write, "At least in 2020 nobody in our family died," but that's not true. One of Hawk's aunts died in January. She had been ill with inoperable cancer and was age 97, so her passing wasn't a surprise. Other than that, nobody has died. In fact, some people are doing better than before. Hawk's dad, who almost died in 2019, has been getting better. My mom finally got effective treatment for illness she's tolerated for at least several months if not over a year already. There is Covid in the family, though nobody's died from that. An elderly aunt of mine got Covid but recovered pretty well. A college-age niece has struggled with Covid for over 4 weeks now but seems to be on the mend, slowly.

Money

You would think a story about money in 2020 would be negative. With widespread closures, loss of business, job loss, etc., there has been plenty of bad news on the money front in 2020. But by late in the year things turned positive, at least for investors.



The chart above shows the S&P 500 Index, an amalgamation of the stock prices of the 500 largest US companies, from 1 January to 31 December 2020. As you can see in the shape of the curve, there was quite a drop— a market panic— in late March. I remember the broad markets dropping 10% in a single day— at least twice. But after a few weeks of bloodletting the recovery began. By August the index was back to even with where it started the year. By the end of the year, after a few smaller ups and downs, it finished up 16%. (You can see the actual numbers in the small print in the pic. The index began the year at 3234.85 and ended at 3756.07.)

Now, I've written before that The Market Is Not The Economy. Well, the Index is not the Market, either. Because of the way the S&P 500 index is weighted most of the apparent gains it shows are from the 10 or so hugest companies at the top. For those "mega-caps", heavily weighted toward the modern tech sector, 2020 has been a banner year. For the other 99.8% of the market it hasn't been so sweet. But even so, most market sectors are up for the year. My portfolios, which in the depths of March were down over 20% from January, finished the year up about 10%. That, surprisingly and pleasingly, keeps me on track with my long term financial goals.

The Year Ahead

As we close the book on 2020— or slam it shut— it's tempting to think how much better 2021 will be. And probably it will be better. Coronavirus vaccines were developed in record time (not actually surprising in light of the science behind the development but still historically fast) and are now available. As they roll out across 2021 we may not vanquish Coronavirus but should at least beat it down that life can largely resume pre-2020 normality.

But there's no guarantee! If there's anything 2020 has taught us it's how thin the ice beneath us is. For example, what if there's a serious stumble with the distribution or efficacy of the vaccines? What if the virus mutates? What if there's another Black Swan crisis entirely unrelated to Coronavirus? At any moment, in any place or fashion, the ice beneath us could crack and plunge us into catastrophe.

Thus I count my good fortune where I can, give thanks for what I have, and stay careful about how precarious the good life is.