The Legacy Perspective - July 2023
Steve & Deb Wachs August 6, 1983
by Steve Wachs, CFP®
Where were you on August 6, 1983? Where were you living? Where were you working? If you had children, how old were they? Yes, I know a few of you may not even have been born yet. Let’s take a walk down memory lane as I can tell you exactly where I was and what I was doing. On August 6, 2023, Deb and I will celebrate our 40th anniversary. On that day in 1983, we were in Aberdeen, South Dakota. That is my hometown which is the 3rd largest city in the state with 25,000 residents. We were in the unairconditioned First United Methodist Church celebrating our marriage ceremony surrounded by family and friends. That unairconditioned part is important as it was the hottest day of the year at 106 degrees. Our wedding cake melted, and a few people almost passed out. It was a memorable day! For those who are laughing at my wonderful mustache, remember it was the 1980’s and it looked great.
Let’s continue our journey back to 1983 and consider what was going on in the economy, the financial markets, and Dallas/Fort Worth area to see if it can add some perspective to what we are experiencing now. In 1983, inflation was a moderate 3.2%. However, from 1980 to 1982, the inflation rate was 13.5%, 10.3% and 6.1% respectively. To combat inflation, the Federal Reserve raised interest rates to over 16% in 1981 and maintained rates above 13% in 1983 even as inflation fell. Deb and I were fully aware of these rates as we purchased our first home in 1984 with a variable mortgage rate of 13%. The Dow Jones Industrial Average (DJIA-30 companies) began 1983 over 1,000 for the first time in history. Included in the 30 companies that composed the DJIA in 1983 were Eastman Kodak, Woolworth and Sears. These companies were stalwarts of American culture. I recall going into Woolworths to get my 10-cent popcorn before going to my 35-cent summer movie – talk about inflation. The S&P 500 index (500 companies) was 160. The top 3 companies in the S&P 500 index were Exxon, General Motors and Mobil Oil. When we moved to our apartment in 1983 at Dallas Parkway (there was no Tollway) and Spring Valley, the population of the DFW area was 2.7 million people. As Deb was starting her job with Dictaphone (remember that device), I hung out at the pool going through the “want ads” looking for a job and discovering there were more restaurants, bars, shops and movie theaters within 2 square miles of our place than the whole state I previously lived.
Let’s move forward to 2023. Last year was the first time many people experienced the impact of inflation as it soared to over 8%. The Federal Reserve followed the path set 40 years ago by raising interest rates 10 times over the past 18 months to slow inflation. The most recent inflation reading was 3.0%. As happened in 1983, we believe the Federal Reserve will keep interest rates higher for a longer period of time in order to stay ahead of inflation. This translates into two investment-related implications. First, we can invest in bonds that pay a decent rate of interest for the first time in over 20 years. Second, we want to emphasize investing in companies that are not relying on debt as their cost of borrowing has increased significantly.
Regarding the equity markets, the DJIA index recently closed over 34,000 (1,000 in 1983) and the S&P 500 is currently above 4,500 (160 in 1983). Conventional wisdom from these statistics would be that the stock market provides good returns over the long term. We think more can be gleaned from this historical information. First, economic shifts happen over time and that is why knowing why we own the companies we do in your portfolio and being active around the buying and selling of them is crucial. “Set it and forget it” does not work (remember Woolworths, Sears and Kodak). Second, waiting for the “best time to invest” is not a successful strategy. Investing in the stock market in 1983 would have meant giving up a fixed income investment that was generating 13% in interest. Interest rates eventually declined and economic growth strengthened leading to the S&P 500 providing a 11.27% annualized return from 1983 to the beginning of this year. Finally, a lot has happened over the past 40 years. The dot.com bust, 9/11, the Great Recession, and the COVID shutdown to name a few. It would have been tempting to try to time the market and avoid those downturns. However, just missing out on the 10 best days (out of 10,000 trading days) would have reduced your annualized return by over half. No one is that smart.
As to growth in the DFW area, the population is now over 7.8 million people. Frisco alone went from 6,000 people to 210,000 people. Dallas-Fort Worth is projected to grow to over 8.5 million by 2028. For those who have witnessed this type of growth, there have been both positive and negative consequences. This growth created wonderful entrepreneurial and business opportunities. Roger and I were fortunate in 1997 to start Legacy Consulting Group with the thought of providing financial planning to a few of these families that were moving here. Population growth has caused home values to soar which increases the net worth of many people. This type of growth is not without problems. As home values increased, property taxes have also escalated along with the ability of new homebuyers to purchase their first house. Traffic congestion and turnover of neighborhoods are other issues that surfaced.
Where will I be on August 6th, 2023? We will be in Maui with our son and daughter reflecting and celebrating. Like the equity markets, our journey had its ups and downs, but we were committed to long-term success. I have been fortunate to be part of your journey for a number of years, which is an amazing blessing. Just as Deb and I look forward to what the future holds, I am excited to be along for the ride with each of you to share in your hopes and dreams.
Disclosures
Legacy Consulting Group is registered as an investment adviser with the SEC and only conducts business in states where it is properly registered or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.
Information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional advisor before implementing any strategies discussed.
All investments and strategies have the potential for profit or loss. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. There are no assurances that an investor’s portfolio will match or exceed any particular benchmark.