History, as the saying often attributed to Mark Twain goes, may not repeat—but it often rhymes. Whether or not Twain actually coined the phrase, it remains a meaningful quip. The tragic events currently unfolding in Iran remind us, first and foremost, of the human cost at the heart of global headlines. Loss of life is always a tragedy, and it’s important to acknowledge this before discussing economic or market implications. Our aim here is not to politicize the conflict but to provide perspective for investors navigating volatile times.

Before we consider numbers, policies, or investment strategies, let’s remember: behind every news story are families, communities, and futures forever altered. However, as stewards of capital—whether for our families, our clients, or ourselves—our responsibility is to make prudent decisions, even in the most challenging contexts.

Government Deficits and Military Spending

A new chapter in government deficits is unfolding. In response to rising geopolitical risks, the U.S. government has requested $200 billion in additional military spending. Here at home, Canada’s proposed $80 billion investment in Arctic defence underscores the seriousness of the moment. These aren’t election-cycle promises—they’re multi-year commitments, layered atop structural budget deficits already at peacetime records. Unlike cyclical deficits that shrink in recoveries, today’s structural deficits have become a permanent fixture. Decades of stimulus, demographic change, and rising entitlement costs have set a new baseline. The additional military spending, while perhaps necessary for national security, means these deficits will not only persist but expand.

Financing Commitments: The "Print and Spend" Paradigm

How do governments finance these commitments in an era when tax increases are political non-starters? Voters are often unwilling to support candidates who advocate for higher taxes or reduced spending and services, which contributes to the persistence of this challenge.

Increasingly, these shortfalls are funded by creating money. Central banks, since going off the gold standard in August 1971—and especially since 2008 and during the pandemic—have been ready partners, purchasing government bonds, keeping borrowing costs low, and allowing spending with unprecedented freedom. This new “print and spend” paradigm may buy time, but it cannot repeal the law of economic trade-offs. The U.S. Federal Reserve’s balance sheet has grown by trillions, and the Bank of Canada, while smaller in scale, has followed a similar path. Eventually, persistent money creation to fund non-productive spending feeds the inflationary cycle. History shows us that, over time, this can erode purchasing power and drive volatility in currency and asset prices. Those in power know this. However, the silent tax of inflation is too alluring, allowing them to make promises without having to immediately determine how to pay for them. This is the reality we need to understand, even if we do not agree with or like it.

Inflation and Its Impact on Investors

For some, inflation is a distant concept—something that happens elsewhere, or long ago. But as investors, we see its fingerprints daily; higher costs at the grocery store, rising utilities, and increases in the value of real assets. What’s less discussed is that inflation doesn’t affect all assets equally. Equities and real estate—the backbone of most long-term portfolios—often provide a measure of protection. Corporate profits and rents tend to move with prices. Hard assets hold their value as money loses purchasing power. However, fixed income investments—particularly long-term government bonds—tend to perform poorly when inflation expectations rise. Cash, the ultimate safe haven, quietly loses value each month if prices outpace its yields.

Market Volatility and Uncertainty

Volatility also rises as markets grapple with these trade-offs. How long will this conflict last? Will central banks hike rates to stem inflation—or hold back, given the scale of government debt? Will markets price in years of higher deficits or simply accept them as the “new normal”? These are unanswerable questions, and attempting to time portfolio moves around them is rarely successful.

The Buckets Framework for Investors

If there’s a refrain in our writing, it’s this: preparation beats prediction. The buckets framework remains relevant as ever. Bucket one is safety: enough cash or liquid assets for one to two years of expenses, so you’re never forced to sell in a downturn. Bucket two is for income—bonds, income notes, GICs—that can provide intermediate stability and a measure of yield. Bucket three is growth: equities, real estate, and your private business, the assets most likely to outpace inflation and grow wealth over time. This structure is not just about comfort; it’s a discipline mechanism. If you know your short-term needs are covered, you’re less likely to make emotional decisions with your long-term investments during times of stress. Historically, those who stuck to their buckets and stayed invested fared better than those who tried to sidestep every crisis.

Resilience and Long-Term Perspective

Markets have always climbed a wall of worry—from wars to recessions to policy missteps. While every period feels unique, the underlying drivers are familiar. Human tragedy and uncertainty are constants, but so too are innovation, progress, and the resiliency of companies and individuals. As we process today’s headlines, let’s remember: our job isn’t to predict tomorrow’s news, but to prepare portfolios for whatever may come. That means staying diversified, rebalancing when appropriate, and revisiting your buckets—not chasing returns or retreating in fear, but remaining anchored to long-term goals.

Conclusion

It’s natural to wonder how to navigate global conflict that touches on both human tragedy and economic uncertainty. But markets are forward-looking, and government behavior has a long-standing pattern. That is why discipline has rewarded patient investors, time and again. Accepting that governments overspend and print money—and will likely continue to do so—is the first step to protecting yourself and creating the resolve to stay invested for growth with your long-term money. The buckets framework, combined with regular reviews and an openness to adapt, remains the surest way to navigate a world that refuses to stand still.

Randy, Ian, and Harrison