Mark Twain is believed to be responsible for first saying “History Doesn’t Repeat Itself, but It Often Rhymes.” What does that have to do with personal finances?
Whether you’re a Millennial, a Gen X-er or an early 1960’s Boomer, our adult life experience until now with finance in Canada has been:
- Inflation – dropped after its 1981 peak at 12.5%, then remained below 3% for 30 years. 1
- The Stock Market – always goes up, more than 10X since 1984 and only once spent five years below its previous high. 2
The same life experience is true for all financial planner/advisors still in the workforce supporting your requirements. Therefore, us as individuals and our planners are biased toward our life experience continuing.
But hold on a moment. Something seems different in the last few years. We’re experiencing higher interest rates and higher inflation. Yet debt is still too easily accessed, and the stock market is still going up. Is this just a blip or are we now living something outside our life experience?
To manage the risk for our financial plan, I went looking for information outside my life experience. Could history tell us about what seems different? What I found included:
- Principles for Dealing with the Changing World Order, Ray Dalio, 2021
- The Fourth Turning Is Here, Neil Howe, 2023
- Broken Money, Lyn Alden, 2024
Changing World Order considers 500 years of rising and declining empires in world history. A recurring cycle of good and bad finances is identified as one of the three most important determinants to the rise and decline of empires. He argues that we are in the final years of an ±80-year debt cycle.
The Fourth Turning is Here re-evaluates 500 years of American demographic history and digs into our current position in the a generational cycle recurring every 80-100 years. He argues we’re in the last decade of that cycle, which is a social and economic winter before the arrival of spring.
Broken Money considers the origin and development of money through a technology lens. It draws out how money has evolved through thousands of years from a tool that allowed society to grow and evolve in the last 100 years to a fiat currency whose quantity is no longer controlled by nature, and how that financial system is failing us. Her thesis is today’s economic conditions are best related to the 1940’s and 50’s, not the 70’s or anything more recent.
Each of these information sources should be read if you can find the time. I have reviewed many additional information sources that indicate a similar direction that something has changed. For now, suffice to say, I believe we’re living in a new paradigm, outside our life experience.
These sources all indicate our upcoming financial experience will most likely rhyme with some combination of Canada’s history from the 1920’s through the 1950’s.
- Inflation – experienced deflation for 12 years starting 1921. Later high and volatile inflation peaking at 14.6% in the late 1940’s. 1
- The Stock Market – spent a full 20 years below its 1930 high, much of it 50% lower. 3
That is very different compared to our bias from the start of this article. We have prepared our finances and investments for this new paradigm, as history rhymes over the next 5-10 years.
Preparation for us includes continuing to research and understand the big picture events towards us, and adjusting our personal finances into a relatively defensive position to ride out the storm.
Grant Halford
Senior Advisor
Footnotes:
1. InflationCalculator.ca/historical rates Canada website
2. Yahoo.com/chart GSPTSE
3. Financial Post, Stocks Through the Ages article, 2021
