In this volatile market, be sure you have a proper, more complete outlook
You know how when it rains, and your lovely picnic gets rained out, there’s always that person with a positive outlook who says, “That’s ok, the grass really needed the rain”? Think of us as that person right now with respect to the stock market, your investment accounts, and your financial plan. We want to be sure you have a proper and more complete outlook for all of this.
We have been concerned for months about the inevitable and necessary market correction, to the point that we reallocated our portfolios back to a neutral weighting in Q3 of last year, and then we underweighted our equity positions even more during Q4. We didn’t raise cash — we stayed fully invested — but we made sure that we had at least some defensive buffers in place within our allocations across our various platforms (bonds, allocation funds, gold & commodity exposure tilts). This of course cost us a bit of relative performance in the December “melt up,” but is certainly paying off for our clients now.
We’re fond of repeating the old saying that “bull markets don’t die, they are killed”… and the cause is rarely foreseen. An exogenous factor like the coronavirus scare can be just the thing needed to refocus the market on fundamentals like growth, profitability, and valuation. While the economy had still been struggling along positively at the outset of 2020, leading indicators have also been showing several warning signs, which are only being exacerbated by these coronavirus disruptions. Monetary policy has been at historic extremes, valuations have also been at extremes, and certain other metrics we use to monitor the broader equity markets have been similarly extended.
We’ve seen the S&P 500 drop over 18% from its all-time high, recorded on February 19. That can create doubts for even the most seasoned saver and investor. Rather than trying to dispel the many concerns that you may be having and that you’re certainly hearing in market commentaries and the media, we instead want to point you back to an important foundational truth that you’ve heard from us repeatedly.
Trust your plan and the conservative long-term average returns built into it
Almost forgot that you have a plan? That would be a fatal mistake. When it comes to your plan, we annually review it, update it, and stress test it to be even more certain that all the elements of your plan are still on track to deliver the results you want. But do not forget that you have a well-crafted plan. Remember, you have considered the full spectrum of contingencies and risks, including volatility risk, in your comprehensive financial plan.
While none of us enjoys this kind of panicky and rapid downturn in our investment account values, we must remember it is short-term. Furthermore, we only have to go back and reflect on how we felt in 2008, and then think on where we were just last week. What’s one word we could use to describe the last decade since the 2009 recovery began? How about epic. The performance of the broader markets and the economy over that time period have been very strong to say the least.
In the worst of it, during The Great Recession, let’s all be honest and admit that at times it was hard to believe that the markets would ever recover, never mind have vision for the last 10 years. But, when you are able to keep things in the context of your very thoughtful and holistic financial plan, you are able to remember that all we need is to maintain the reasonable and conservative long-term average returns that are built into your plan for you to hit your targets. What happens in short-term cycles like we are in the midst of currently are normal blips on the radar of investing and at the end of the day matter little as long-term average returns will over time hover back to their respective historical means.
We hope this gentle reminder takes some of your worry and concern away. But if you are interested in more than this right now, we have also included a link to a very well written and more detailed analysis that you may find helpful.
While we hope and trust you know this already, we welcome your calls and invite you to reach out to us freely if you have any additional questions. We are more than happy to speak with you personally about all of this. Peace (seriously!).
The material contained herein is for informational purposes only and is not intended to provide specific advice or recommendations for any individual nor does it take into account the particular investment objectives, financial situation or needs of individual investors. Any tax advice contained herein is of a general nature and is not intended for public dissemination. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as insurance professionals and investment advisors.
Neither Wealth Impact Partners, Valmark Securities nor its affiliates and/or its employees/agents/registered representatives offer legal or tax advice. Please seek independent advice, specific to your situation, from a qualified legal/tax professional.
Securities offered through Valmark Securities, Inc. Member FINRA/SIPC. Investment advisory services offered through Valmark Advisers, Inc., a SEC Registered Investment Advisor. 130 Springside Drive, Suite 300 Akron, Ohio 44333. (800) 765-5201. Wealth Impact Partners is a separate entity from Valmark Securities, Inc. and Valmark Advisers, Inc.