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The Lost Decade. Are you ready?

March 4, 2024
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Wiko Steyn
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Wiko Steyn

Monthly ETF Contribution

 

There's a high probability in my mind that the market, at best, is going to be kind of flat for 10 years, sort of like this 66 to 82 time period. 

These ominous words came from legendary investor Stanley Druckenmiller during an interview with Alex Karp, CEO of software and A.I. firm Palantir. When Duck speaks it is probably a good idea to pay attention. We have talked about this man before, yes he is the guy who beat the index for 30 years with an astonishing annual return of 30% and not a single down year. 

Druckenmiller was an outspoken critic of the Federal Reserve printing trillions of dollars in the past couple of years. And warned that there would be high inflation as a result of it. Druckenmiller's prediction may seem like an obvious call, but it is now clearly evident that most people did not reposition their portfolios accordingly. We are unfortunately included in this statistic by keeping our personal portfolio mostly in growth stocks throughout 2021 and 2022.   

In this article, we will examine why Druckenmiller's words should be taken seriously, what investors can do during a decade of no returns, and why it is crucial to focus on sleeping well at night.

 

The Decade of No Returns, is it really possible?

During the Covid pandemic central banks wanted inflation, and boy did they get it. When it became clear that inflation is not transitory the panic kicked in with the fastest interest rate hikes we have seen in the last 40 years. 

They'e like reformed smokers, Druckenmiller said. They've gone from printing a bunch of money, like driving a Porsche at 200 miles an hour, to not only taking the foot off the gas, but just slamming the brakes on.

Druckenmiller's prediction is based on the period from 1966 to 1982, when stocks did not perform well during long periods of high inflation. Druckenmiller believes that central banks' current policy changes are similar to what happened during this period. So yes it is certainly a possibility and there are many indicators pointing in this direction.

 

Sleeping Well at Night (SWAN)

Druckenmiller's prediction may be correct or incorrect, but it is unreliable to make an all-or-nothing decision based on one person's forecast. Economist and historian Peter Bernstein said, 

"Forecasts create the mirage that the future is knowable." 

The future is anything but. Trying to predict it, especially on a macro level, is not the best use of one's time or money.

While it may be tempting to make knee-jerk reactions based on short-term market fluctuations, historical data suggests that staying the course and avoiding interrupting the effects of compounding is often the best strategy for long-term returns. Key Tip:  stop looking at your stock performance every day and potentially doing something stupid (i.e. selling).

That said, investors should still focus on sleeping well at night. Having an allocation to cash may certainly help investors with this goal. Capital preservation is key to a long investment career. Investors should ask themselves if they would panic if their portfolio dropped another 30%. If so, they are overexposed, and it is not too late to change their position. But you need to do what's best for you.

 

Conclusion

Who knows what will happen over the next decade? Trying to predict the future is unreliable, but investors should not bury their heads in the sand. They should take Druckenmiller's words seriously, focus on sleeping well at night, and have an allocation to cash to preserve capital. The market environment today is uncertain, and investors should avoid getting their hands bloodied by chasing any FOMO. It's okay to nibble on stocks at these levels because history says that returns are positive from here. But you don't need to be a hero, because it is never a good idea to try and catch a falling knife.

Luckily using a DCA strategy into ETFs is one of the less stressful methods of investing. This is why it is the biggest portfolio of the 5 demo portfolios we have built on this platform.

 

Summary of the 10 ETFs we hold in this demo portfolio:

iShares Core S&P 500 ETF (IVV) If Buffet recommends it, who are we to argue? America might be facing some serious economic headwinds but in the long term, this fund has averaged more than 10% return per year.

VanEck Vectors Semiconductor ETF (SMH) Semiconductors are the new oil (well maybe not right now, seeing that oil is the new oil at the moment).  The digital world runs on semiconductors and this trend will continue into the foreseeable future. 

iShares MSCI Global Multifactor ETF (ACWF) Own the world.

iShares MSCI Emerging Markets ETF(EEM) This fund provide exposure to large and mid-sized companies in emerging markets.

Vanguard Dividend Appreciation ETF (VIG) This low-volatility fund also provides a healthy 1.94% dividend yield.

iShares S&P Global Clean Energy Index ETF (ICLN) The world is transitioning to cleaner energy and this fund should benefit.

VanEck Vectors Rare Earth/Strategic Metals ETF (REMX) This ETF provides excellent exposure to rare-earth and strategic minerals.

Vanguard FTSE All-World ex-US ETF (VEU) Exposure to high-quality companies outside the US.

iShares Trust - iShares Global REIT ETF (REET) Own property around the world with this high-yield fund. 

Invesco QQQ ETF (QQQ) This index includes the 100 largest non-financial companies listed on the Nasdaq based on market cap.


 

Disclosure

This is not financial advice and only the opinions of the author. The $28K in the ETF portfolio is not real money and is only a demonstration of a typical portfolio.  All investments involve risk, and a financial product's past performance does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.


 


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