Finding calm in the waves

By John Owens CFP®, EA, ECA, CPWA®

I recently returned from a long weekend at the beach. I love the ocean - I always have, I find the waves to be a calming presence - a source of consistency in a world that is anything but. What draws me to the beach - aside from wanting to show off my dad bod this summer - is that when I sit there, listening to the waves come in and out, very little else matters. 

The sound of the waves, the foam, the taste of the water, and the feel of the sand hasn’t changed in the last almost 30 years that I've been going to the beach. As I gaze out onto the horizon - I think about opportunity. And as an investor today, I see plenty of opportunity. 

You probably don't see the word opportunity in the headlines much these days. Inflation is at a 40-year high; we've seen two consecutive quarters of declining economic growth - a key recession indicator, and have entered bear market territory. So why do I see so much opportunity? Probably because I'm a long-term investor. Let me tell you why. 

For the first time in nearly 15 years, I see modest opportunity for my cash savings - a healthy chunk of which I deployed in I Bonds beyond what I need in my emergency fund - which are currently earning about 9.62% interest risk-free. 

Many high-yield savings accounts are cranking up the interest they pay - near 2% in some, the best rates we've seen since pre-COVID. 

Valuations in the US stock market look remarkably better than they did at the start of the year. The S&P 500 is trading at about 17.14x forward earnings, just slightly above the 25-year average of 16.87x forward earnings. For context, late 2021 saw price-earnings (PE) ratios in the S&P 500 near 22x earnings. The market is more fairly valued today than it’s been in over two years.  

International valuations are also attractive compared to their long-term average and US peers, the MSCI All Country World Index excluding the US (the global stock market without US stocks) is trading at about 11.9x earnings - below its 20-year average of 13.2x earnings and well below US valuations listed above. 

While there's a world of geopolitical uncertainty - a strained relationship with China and the War in Ukraine, periods of long-term economic growth have often occurred during uncertainty - simply look back to the Cold War and the War on Terror as examples of economic expansion amid chaos abroad. 

While domestic political animus appears to be at an all-time high, despite what Fox or MSNBC will tell you, major bipartisan legislation on infrastructure, guns, and chip production have all passed with broad support. There are adults at the Federal Reserve who are students of the last inflation crisis - whose terms on the Fed extend several years beyond the next two presidential elections. 

I'm not going to speculate on what the market, global superpowers, or congress is going to do in the next couple of months. There's a strong potential for a recession, continued volatility, and divided government. As a long-term investor, that's a lot of noise. Fundamentally, the market is cheaper, my cash is paying me more than it has in years, and global and political headwinds are par for the course rather than an anomaly. I've got about 30 years until I retire and another 30 to live after that, God willing. If your time horizon is even a fraction of that, staying invested in this market as valuations are reasonable and risk-free assets are paying more will likely provide valuable upside over the long term.

So when the headlines get scary, when you're afraid to log in to your portfolio, and when you think you've had enough - go to the beach. Listen to the waves and put your feet in the sand. The market, like the ocean, simply persists. If you can't find calm in the market, you may simply need to find your calm at the beach.