Broker Check

Money for Nothing

May 14, 2021

The song “Money for Nothing” was released in 1985 by Dire Straits. Mark Knopfler wrote it with a bit of help from Sting. You may wonder how this is remotely related to anything financial; bear with me a moment. The story is that Knopfler wrote the song about “rock star excess” and the easy life it brings. I.E., there was so much money flowing around for rock stars that it was almost like it was “free.” I won’t go into what was free.

Who would have thought a year ago that we would be where we are today from an economic standpoint? Regardless of your political bent, you can’t argue with the fact that the markets shot out of 2020 as if they were fired from a cannon. The S&P 500 finished with a gain of 16.3%, and the Nas-daq soared to a 43.6% gain by the end of 2020. I don’t think anyone saw that coming back in March when we saw the indexes at their lowest. As I write this, the S&P has rebounded over 76% from the trough. The government is throwing money at people and employers through stimulus checks, PPP loans, and other measures. From a fiscal stimulus standpoint, the Fed dropped both the federal funds rate and the discount rate down to .25%. There we are. I brought it home, “Money for Nothing.”

What does all this mean going forward? Businesses and individuals alike have taken advantage of all of this free money and have invested in themselves, refinanced business and personal debt, refinanced mortgages, car loans, and the like. All of this puts more money into the economy. While GDP certainly took a hit mid pandemic, some estimates are now calling for as much as an 8% GDP in 2021. Incredible.

Why am I telling you all of this? Because it’s interesting to look back and see what can happen in a year, how the market and the economy can be completely rocked (and not in the Dire Straits’ context) and come back with a bang. It’s a reminder that a sound investment philosophy and plan will weather the storm. I’m sure you have heard the old refrain, “Time in the market, not market timing,” is what wins the day. This is applicable now, and it was applicable in March of 2020. How many of you didn’t listen to your advisor back in February or March of 2020 and “got out?” Whether it was because you were afraid of the election? Or perhaps because you were sure this global pandemic was going to bring down the global capital markets for good?

I’m not in the business of forecasting the markets and firmly believe no amount of research can be a substitute for owning a globally diversified portfolio, in our case, of index funds. If you don’t have an enduring investment philosophy and financial plan in place, then there is no time like the present. To bring it home yet again, most rock stars these days have financial advisors.