Andrew Hallam
30.11.2020

How To Invest In These Uncertain Times
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It looks like a perfect storm. There’s instability in America’s White House. That reality, alone, could hammer global markets. Experts say the recession will get worse. Several economic forecasts say inflation could hit 12 percent or more. If employment and salary increases can’t match that, we’ll have a global real estate meltdown.

Home mortgage interest rates might soon hit double digits. Tensions in the Middle East are heating up again. The Middle East is threatening to limit the sale of oil to the west. Some forecasts say fuel shortages might be coming. That could mean day-long lines to put gas in your car. There’s even risk of Nuclear war. At least one rogue nation is stepping up aggression.

These are uncertain times. Unprecedented times. Many people wonder how to protect their investments. Others haven’t yet started to invest. They’re afraid to commit because nothing seems stable.

But I didn’t describe today. Instead, I described a single year in the past. It was 1974. President Nixon was on the chopping block. Inflation and mortgage interest rates soared above double digits. Oil prices went through the roof. A Middle East-led embargo meant we sometimes waited an entire day to fuel our cars. Inflation and mortgage interest rates kept ticking upward. The mortgage interest rate on my parent’s home would soon hit 18 percent. Communism was spreading and people feared a nuclear war. Yeah. The threat of nuclear war was real.

Those were uncertain times. They were unprecedented times. But that’s life. Every generation faces several unprecedented times. But in each case, we believe that what’s happening to us, right now, is the most uncertain ever. Many of us feel that today. And it’s not our fault. In psychology, this is known as an “availability heuristic.” In the case of our current COVID-19 crisis, it means that whatever is happening right now (the uncertainty and fear), is the worst thing that has ever happened in the history of the planet. That’s based on the psychological notion of current recollection. It’s forefront on our minds, and so our minds make us believe it’s the worst thing ever.

Of course, we know this is horrific. But if our great grandparents had the ability to come back from their graves, they might slap us hard. This doesn’t hold a candle to World War II. Arguably, it might not be as bad as 1974. What? 1974? Global stocks fell almost 50 percent. We stepped on eggshells, always on the brink of Nuclear war: the end of life for everyone. And if a war didn’t end the world, communism would end capitalism as we knew it.

This 21-second video shows the spread of communism over the years. Take a moment to watch it and then pause the video in the mid-70s. People’s availability heuristic, at the time, used words like, “unprecedented.” And they were right. Those were uncertain times. But despite that, a $10,000 investment in a U.S. stock index two years before (in 1972) would have grown to $1.3 million by today. The global stock index earned similar returns from 1972-2020 (averaging about 10 percent per year).

I’m not, however, trying to downplay the economic fallout and human casualties caused by COVID-19. Instead, I want to come back to my premise: How should you invest in these uncertain times?

Invest in a manner that will give you the highest statistical odds of success. That means building and maintaining a globally diversified portfolio of low-cost ETFs. It means keeping a consistent allocation, no matter what you see in the news and no matter what happens to the markets.

Time and again, I’ve shown that trying to outguess the market doesn’t work. If it did, hedge fund managers would beat portfolios of index funds. But they don’t…not even during unprecedented times.

Nobody can predict the economy or how markets will perform. That’s why investors need to stay calm. They need to stay the course. By doing so, they will beat the pants off those who try to strategically move money.

The biggest challenge isn’t uncertainty itself. Instead, it’s the person you face in the mirror each day. Does that person have the discipline to stay the course? Or will they, like so many others, get sucked into speculation based on the availability heuristic?

Every generation faces uncertainty: The Great Depression, World War I, World War II, the Cold War, the oil embargo, run-away inflation in the 1970s, Y2K, the 1997 Asian financial crisis, the 2008 global financial crisis.

In fact, not a single year in history faced certain times ahead. Yet, despite uncertain times, stocks performed well over rolling 30-year periods. If you’re 60 years old or younger, that’s the time duration you should focus on: 30 years. Nothing else matters. After all, your investment time duration isn’t your working duration. It’s your living duration instead.

Andrew Hallam is a Digital Nomad. He’s the author of the bestseller, Millionaire Teacher and Millionaire Expat: How To Build Wealth Living Overseas

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Please note the value of investments can go down as well as up, and you may not get back all the money that you invest. Past performance is no guarantee of future results.