The world had entered a turbulent and uncertain time from the start of this decade. We started the decade with Covid and its effect lingered for 2-3 years.

War clouds loom -

We were attacked by China and the Galwan Valley hostilities took place in June 2020 and the military standoff has persisted with China for several years since. Even now, after several rounds of talks, the militaries of both the countries have fallen back to forward positions instead of at LOC. Both countries are still wary of each other and the facilities along the LOC are being upgraded, which indicates that the countries are being very cautious.

The Russia- Ukraine Conflict started in Feb 2022 and the Israel-Palestine conflict in Oct 2023 were the Global conflicts that grabbed headlines for long. In between, Israel had attacked Iran, as their proxies Hezbollah, Houthis were attacking Israel ( apart from Hamas ) and Iran had attacked back.

There were other conflicts between Thailand- Cambodia, Myanmar- Arakan army- Bangaladesh, Syria internal conflict and change of leadership, Venezuela President kidnapping by US special forces etc. US is involved in most of the conflicts in some or the other way.

Regime change in Iran -

US has opposed the Iranian regime from the beginning, after the Shah of Iran ( a US stooge ) was overthrown in 1979. US has been trying to topple and overthrow Iranian leadership ever since. US has tried to scuttle Irans nuclear ambitions and had imposed crippling sanctions on Iran for a very long time.

US has tried to create civil unrest and do a regime change operation in Iran, several times, the latest being a couple of months back. The US along with Israel had attacked and killed the senior Iranian leadership. They thought that would loosen the grip of the current regime and they could install another puppet, who will do their bidding. That has not come to pass yet. In fact, Iran is fighting back and attacking US bases in the West Asia region, US military assets as well as Israel. Iran itself is at the receiving end of a crippling attack and is facing major losses.

Watch this commentary about the conflict - https://www.youtube.com/watch?v=DD7arJZ3As8

It does not seem like this conflict will end soon. Iran has arms manufacturing capacity and has a good stockpile of weapons, missiles and drones to continue for months, as per military strategists. This is sending oil and gas prices through the roof and is disrupting trade.

Uncertain, unsettled times -

On top of all this, we have Trump, who thinks tariffs are a legitimate policy tool to bludgeon the world into submission. His predecessors had used sanctions as their tool of choice.

Sanctions work till a point. Too many sanctions takes away the leverage like it happened in the case of Russia, when the US and their Western coterie froze ( stole ) Russian sovereign investments and removed Russia from the SWIFT system. The world realised how capricious and vicious US & their lackeys can be when someone does not follow their writ.

Dedollarisation started from that point, where various countries started looking at alternate payment settlement systems as also doing trade in bilateral currencies or third currencies. Still, the Dollar continues to rule, for now. But the US empire is in decline - has been in decline since the turn of this century.

Trump has not made things any easier for the US and has been proverbial Don Quixote. He has a band of Sancho Panzas who fawn over him and spout nonsense like their leader, causing immeasurable harm to the US. This has alienated even their closest friend and ally - Canada.

US is now in a trade war with virtually every country ( including their allies like Europe, UK, Japan, South Korea, etc. ) and has clearly made itself a laughing stock in the world. But, since US is a big economy with a powerful military and an unhinged leadership, it looks more like a four year old who has got hold of a sub machine gun!

Watch this video - https://www.youtube.com/watch?v=aJcgmRZ2pmg

To top it all, Artificial Intelligence (AI) has burst into prominence in the last 3 years with the AI models capabilities surging ahead by leaps and bounds. This is adding to uncertainties. AI capabilities have the power to take over various tasks and perform it much better and far faster than humans. There is huge disruption ahead. Many people wanted to Retire early. That is probably going to come to pass. But, would they be financially independent by the time they retire is the question.

Watch this video - https://www.youtube.com/watch?v=7Rsrc4csRWM

Navigating the chaos -

We worry a lot based on the events of the near past. But, when Covid was raging, the entire world could not see past it. We were all paralysed by the pervasive pressure of a virus that seemed Satan-like in its destructive potency. Covid is now forgotten. We have had a lot of other things to worry about since!

This happens over and over again. There is a name for this - recency bias. Recency bias makes people overemphasize recent occurrences/ information and assign disproportionate weight to them. They tend to extrapolate the future from this neartime input and tend to make decisions, which turn out to be wrong.

There are a whole lot of cues today which are worrisome by themselves, but may not have a huge impact on one's finances. Most times, the current events are a distraction which we need to recognise, understand and stay the course.

The past data show that the news and high decibel events are a distraction, which we tend to get affected by. Markets react temporarily at that time but get back to their intrinsic values and growth, over time.

Markets are a voting machine in the short term and a weighing machine in the long-term, remarked Charlie Munger, a longtime associate of Warren Buffet. What he meant was that the price of stocks can be based on peoples opinions and mass hysteria for a short-time, while it reverts to its true, intrinsic value, determined by market forces over time.

Markets are volatile and may fall at certain points. But, it recovers most times. Also, over time, markets offer double digit returns which beat inflation and help in growing wealth.

Enclosing some charts which illustrate these.

Risk and uncertainty -

Risk is a measurable, probabilistic, and often manageable event with known potential outcomes, while uncertainty refers to unpredictable situations where probabilities cannot be assigned due to a lack of information or extreme complexity. Risk involves knowns, whereas uncertainty involves unknown, unforeseeable circumstances.

We are in a territory where there is both risk and uncertainty. We will manage the risk by crafting a portfolio that is well diversified, has different uncorrelated asset classes and an appropriate investment horizon.

We can compensate for uncertainty in multiple ways.

1. We normally provide for liquidity to take care of expenses to the tune of 3-6 months ( including EMIs).
2. We provision for important and agreed goals coming up in the next three years so that any corrections in the markets will not disrupt important life goals.
3. We can pay down any loans if we foresee income uncertainty.
4. We also provide for known and unknown contingencies. In times of extreme uncertainty and volatility, we can keep aside a good provision towards this. The contingency amount could vary depending upon the risk perception. A good ballpark would be two years of expenses.

Conclusion -

The areas of concern that are tormenting us are not in our control. But, they cannot be wished away. However, by planning and being prepared, we can face what the future may present to us. That has always been our endeavour. There is no change in this approach.

Conservative Planning, after providing for contingencies, leads to good outcomes. The basics dont change - disciplined, regular investing and staying within the budgets - be it expenses or goals. Our approach to investing is creating a diversified portfolio for the long-term where we dont interrupt the beneficial compounding. The focus is on resilience - war or no war!