The Sh*t Happens Strategy

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Jason’s Random Words

I have a friend who’s a seasoned investor who recently participated in a U.S. Treasury auction. These were short-term treasuries (13 weeks and 26 weeks). His thesis was, in the midst of all of the drama with the Trump tariffs, we had already seen some pretty concerning actions with longer-dated treasury auctions in recent weeks.

He figured he’d be able to capture a higher yield than would be available in a deposit or money market account for a short-term holding, boosted by a debt market that’s recently become a little bit less and just accepting of the U.S. dollar as the global reserve currency.

To paraphrase, he told me something along the line of he’d either get a modestly better yield, or a very high yield. If it was a much higher yield, we were screwed, but yay, higher yield!

So what would it really mean if the U.S. dollar was no longer the de facto global reserve currency? That’s a question for another format (foreshadowing!). My guess is it wouldn’t be good, and it would erode a massive amount of the wealth most of those who bother to read this have accumulated, and in some rather permanent ways.

But thinking about it got me thinking about the assumptions we make as investors. I’ve written about how fortunate those of us who have simply held investments in stocks over the past 15 years have been. To put it into context, Every period of time longer than 3 years since the beginning of 2010 has generated annualized returns of more than 12%. That’s about 20% above the market’s long-term average, and a lot of those years have been much better than that.

How many investors out there now expect to just get that automatically now? That it’s become the new stock market average?

How’s that workin’ out for ya?

Ask anyone who started investing in 2000 how that sort of thinking worked out. Since the start of that year, the S&P 500 has averaged 7.35%. That’s more than 25% worse than the market’s long-term average, and the result of two of the biggest market crashes in history in the first decade. As much as we may have been lucky to have avoided a similar fate in the pandemic, eventually, long periods of outperformance get bookended by some period of lower returns, whether due to a starting point of extremely high valuations (dot com bubble) or some global economic calamity (Great Recession).

Here’s some proof in the pudding, so to speak. The “lost decade” of the 2000’s came after one of the greatest decades in market history, with the S&P 500 averaging more than 18% per year from 1990 through 1999. The 1980s, while starting and ending with some trouble, was also a great period for stockholders.

Keeping (messed-up) expectations in check

The point is, whether it’s how the market did last year, last decade, or last century, those numbers are just starting points to understanding how investing in stocks can help you create — and also lose — wealth. But it’s when we use those assumptions as a proxy for some promise the market “owes” us that we run into trouble.

A better idea? Set some goals, and then assume you’re going to come up short. The market will crash or have a handful of bad years. Or both. You’ll lose your job or get sick at some point and fall behind on retirement savings for a year or two. Something will happen.

Shit happens.

So what do you do? Plan better. Increase your retirement savings contributions. Find a side hustle for a few years. Put extra cash in savings. Get more and better insurance (especially term life when you’re young. Your family can live without you, but not without your lost income). I know it sucks to think about. But if it happens, you’ll be dead. Your family will be the ones thinking about it.

Plan for shit happening. That’s the whole point of planning!

If you’re only planning for things to go great, you’re wasting your time and not doing it right.

Chances are, things will be fine. There have been far more great decades for investors than lost decades. You probably won’t die. Or get laid off. Or get cancer. Or get cancer after being laid off, have to cash out your 401K to make ends meet, and then still die.

But shit really does happen. Assume things will go great. Just don’t plan for it.

You can do it,

Jason