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There Must Be A Pony In Here Somewhere!

There Must Be A Pony In Here Somewhere!

| May 02, 2022

There is a clever old story about a young city girl who goes out to her grandfather’s farm. Upon entering the barn, she sees a large pile of accumulated horse manure and excitedly jumps into the pile and begins to dig. Her grandfather pulls her out and asks her “What in the world are you doing?” “Papa!” she says, “With all this poop, there must be a pony in here somewhere!”

So far this year we have all had to endure a fair amount of proverbial horse manure. Yes, stocks are down somewhere between 12-20% depending on which index you track. Oil and gas prices are painful.  Food, airfare and almost everything else is getting more expensive. And, to add insult to financial injury, the bond market has been beaten up by rising interest rates. So, is there any reason to believe there might actually be a pony in all this poop? 

For many years now, we have seen and felt the pain of lower interest rates on fixed income investments. Many of you remember the 90’s when CDs down at the bank earned about 4-5% and bond yields of 6% were normal (and yes, some of you are old enough to remember 12% CD rates back in the early 80’s). For the last several years, banks have been paying less than 1% and many bond funds were paying under 3%. These artificially low rates brought on by Federal Reserve Bank stimulus have made life hard for retirees who want safer income from their savings and investments. 

Many in the planning field have long touted the 4% rule. It’s basically the idea that if you don’t take more than 4% per year from your retirement savings, you will likely not run out of money. That idea has been challenged in the last several years due to the lower rates on bonds. It makes sense – if 40% of your investments are only earning 1% (vs 4%-6%), you must rely on consistent growth in stocks to provide your income. That’s a problem since stocks are not all that consistent. 

So if you are retired, or plan to be any time soon, the return to more normal yields and inflation is the “pony” you should be looking for. Low interest rates have been great for risk takers and businesses looking to expand. They have helped the economy re-accelerate. That is a good thing. But now we can get back to a more normal balance between growth AND income. Yes, it’s a little painful to get there, but the rewards will likely be long enjoyed. 

I cannot remember another 3-year time in my life where so many things changed all at once. But what stands out to me most is how fast our free-market economy has adapted and changed to keep up with all the moves. Sure, some of the moves in the market have been down (and a little frustrating), but the world has seen events like this and worse in the past. Each time this happens, we get nervous. Some of us wonder if this is the time that everything comes undone. And each time, the markets heal and move back up and those who stick with their long-term plans are rewarded. 

Even with all the manure, there are still good things happening. We just need to keep doing the reasonable things to control risk and let time do its thing. If you need help “finding the pony” in all of this – let us help!