Bonus Points: Life After the Ice

Bonus Points

My personal neck of the woods recently experienced a pretty significant ice storm. While uncommon, they’re certainly not unheard of and I’ve lived through several memorable examples. But this is the first time I witnessed one from the cozy confines of a home facing an expansive treeline. And man — that was wild.

What started as a cold snap with freezing rain evolved to pretty icicles on the treetops. But as night approached the noises started. Weighted by heavy ice, limb after limb began to snap and fall to the ground. Every few minutes for several days there was the loud sound of snapping wood followed by crashing ice reminiscent of breaking glass. It was unsafe to walk outside. Thousands of people lost power. And you had no idea what might be left when it was all over.

I write this today watching from the same window a week later. It’s cool but sunny. If you look closely, you can spot hundreds of broken limbs with the bright color of newly exposed wood. But the leaves are green. The birds are chirping. And life goes on.

2022 was a rough financial year not only in the markets but also in the price tags of everything as inflation ran rampant. Every day you could hear the sounds of something else breaking, and you had no idea what might be left when it’s all over. The ice may not be completely gone just yet and you may need to keep your head on a swivel for a while for late falling limbs. But the ice will pass.

The next time you hear the limbs cracking, don’t panic. Just stay warm, count your blessings, and look forward to a bright future.

Good Questions

What other Portfolio Charts readers are asking

The return of the Golden Butterfly on the Heat Map for 2022 shows -19%. On other sites the return is -13%. That seems like a large difference. Do you know why that is?

The important thing to remember about Portfolio Charts is that the numbers are always adjusted for inflation. Inflation has been low in recent years which perhaps masked the difference, but inflation in 2022 was around 6%. So while there will always be small differences in returns numbers based on normal variability in sources, I’d bet good money that the other site you’re looking at is reporting the nominal returns. Account for inflation and we’re on the same page.

Have a question? 🙋‍♂️

I’m NOT a financial adviser, but I’m always happy to help.

What I’m Reading

Insightful market discussion worth sharing

Why is Gold Valuable? [The Definitive Guide]Of Dollars And Data

Over this time period the S&P 500 beat gold by 16x in real terms. You might see a chart like this and ask why someone would ever invest in gold for the long term. However, this misses a bigger point about the value of gold within a portfolio. It’s within the context of other assets that gold really shines (pun intended).

While so many investment experts out there spend the vast majority of their energy debating individual investments on their own merits, Nick Maggiulli gets it. It’s really the portfolio that counts, and in that context gold can play a critical role. For more information on that point, be sure to read my own research on Three Secret Ingredients of the Most Efficient Portfolios.

How Long Will It Take the Market to Recover?Morningstar

And while investors might find volatility unpleasant, the real risk they face is not having enough assets available to meet their goals. One way to manage this potential shortfall risk is to consider historical recovery times for different types of investments.

I naturally agree with the idea of using historical data to properly set expectations, and I find Amy Arnott’s approach pretty interesting. When interpreting the data, just keep her (clearly stated) caveat in mind that the numbers do not include inflation. For inflation-adjusted numbers on both an asset and portfolio level, check out the Longest Drawdown data.

Why a diversified portfolio needs more than just bonds Monevator

What the UK’s historical asset class returns tell me is we need them all – because we need to be ready for anything.

I love how Monevator brings out the heavy artillery with the historical UK numbers! His data-driven recommendations to hold stocks, bonds, gold, and cash to protect against the worst financial times are to my trained eyes solid independent reinforcement of Harry Browne’s ideas. Whether you divide those assets equally like the Permanent Portfolio, ramp up the stocks to 40% like the Golden Butterfly, or prefer The Accumulator’s idea of 60% stocks and 40% of the other three, the key ingredients do work quite well together. And not just in the USA.

In Case You Missed It

New features and updates at Portfolio Charts

If things look a little different around the site, it’s because I just finished sprucing up the place with several organization and navigation improvements:

  • My Portfolio has been moved to the Charts section with all the individual tools. Likewise, the portfolio comparison charts moved to the Portfolios page. I think it just makes more logical sense that way.
  • Each of the four main pages now have a shortcut bar at the top to help you quickly find what you’re looking for.
  • The Insights > Topics section now has a fancy new search tool to more efficiently find articles you may be interested in.

When the financial ice melts, share a bit of warmth.