05 Jan 2023 You Aren’t Too Big To Fail (And That’s Okay)
An over-simplified story about the Global Financial Crisis is that when the housing market blew up, causing subprime mortgages to start drowning, causing the collateralized debt obligations backed by securitized versions of those subprime mortgages to implode, causing mass panic and the threat of bank runs—there was basically nowhere to hide if you were a financial institution. You couldn’t magically recuse yourself from the reckoning.
In some ways, 2022 was like that for individual investors. There was nowhere to hide. It wasn’t a case of, “Well, if we had simply invested in a safer asset, we could have avoided one of the worst ten years in stock market history, one of the worst five years for the 60/40 portfolio.” Where would you go? Stocks were getting hammered, cash was getting hammered (this is the definition of high inflation), and bonds were getting hammered (interest rates were going up as quickly as Elon Musk and Sam Bankman-Fried’s respective egos).
The difference between the Great Financial Crisis and 2022 is none of us as individual investors are Systemically Important Financial Institutions. The Fed and Congress are not going to help any of us remain solvent. They aren’t going to inject capital into our personal balance sheets. We aren’t too big to fail.
The stock market doesn’t care that it’s not 2022 anymore. The Fed doesn’t care, the economy doesn’t care, and neither do your bills. And though I am not the type of person to pick a “word” for the new year, the perpetual word for the health and well-being—economically and otherwise—I would share for our clients and anyone willing to listen is Margin.
You may not be “systemically important,” but you’re indescribably important to your family and community, and margin is the way you keep afloat even in years like 2022, even in years like whatever 2023 will bring. Margin doesn’t prevent losses, but it keeps them from ruining you. Margin isn’t a means of escape, but it is a means of maintaining agency in the midst of turmoil, of being an actor rather than only acted upon. Margin is a buffer, margin is time, margin is the deep breath and quiet place to think that we so desperately need not only as investors, but as people.
Taking steps to build margin into your personal income statement (keeping a sustainable relationship between your spending and income) so that you can build margin on your balance sheet (enough liquidity to weather the volatility inherent in your growth assets) is not easy. It’s hard to know how much margin is appropriate, how that measure may change over time, and how to make the decisions necessary to achieve it.
But that’s what we’re built to do well at Beacon: to partner with clients in creating the sort of margin that doesn’t simply work to prevent overreach and ruin, but which actively cultivates a sense of peace and well-being. Let’s do more of that this year!
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