Congratulations! You deserve to be recognized for doing it the right way.
Financial Coach, like most businesses these days, is operating remotely. With our office closed, each team member is trying to adjust to this reality while staying connected to our clients and their financial plans. Each morning at 10:00 am, our team convenes for a group conference call when we review the previous day’s activities, market dynamics, and business items of immediate importance. We assign tasks, responsibilities, and give each other the necessary “pep talk” to persevere during this trying time. The news cycle and market action are as fluid as we have seen in generations, challenging even the most seasoned investors; us included.
The highlight of our daily call is when we share with one another the amazing feedback that we are receiving from you, our valued clients and friends. The refrain that we are hearing time and again is that you feel prepared to deal with this market craziness, and that your advisors have organized your assets in a way to not only mitigate the worst of the damage, but to also profit from it. Your confidence may be a bit shaken, but you are executing on your plan and absolutely know that there is a light at the end of the tunnel. You have been here before, and like all previous occasions you will be rewarded for your patience and discipline. It is easier said than done, but you know it to be true, and you are doing it!
Congratulations! You deserve to be recognized for doing it the right way. You built a thoughtful and comprehensive strategy. You have followed it through both good times and bad. You continue to be diligent regarding spending and tighten the belt when necessary, while also being a valued “backstop” for loved ones during this difficult time. You are the reason why Financial Coach exists, and we are proud and humbled to call you our client. We all stand at the ready to support you and your family through these trials and remain supremely confident that we will all be better off on the other side.
We are a phone call or an email away. Please touch base if you need us.
Yesterday — March 9 — was the eleventh anniversary of the
crescendo of global panic that marked the bottom of the bear market of 2007-09.
It is a thing of the most wonderful irony that the world has elected to celebrate this iconic anniversary with – you guessed it – another epic global panic attack.
yesterday morning’s opening level of 2,764, the S&P 500 was down over
18% from its all-time high, recorded on February 19. Declines of that magnitude
are fairly common occurrences – indeed the average annual drawdown from a peak
to a trough since 1980 is close to 14%*. But such a decline
in barely a month is noteworthy, not for its depth but for its suddenness.
As we all know by now, the precipitants of this decline have been (a) the outbreak of a new strain of virus, the extent of which can’t be predicted, (b) the economic impact of that outbreak, which is equally unknown, and (c) most recently, the onset of a price war in oil. (That last one is surely a problem for everyone involved in the production of oil, but it’s a boon to those of us who consume it.)
The common thread here is unknowability: we simply don’t know where, when or how these phenomena will play out. And in our experience, the thing in this world that markets hate and fear the most is uncertainty. We have no control over the uncertainty; we can and should have perfect control over how we respond to it.
Or, ideally, how we don’t respond. Because the last thing in the world that long-term, goal-focused investors like us do when the whole world is selling is – you guessed it again – sell.
Until then, your team at Financial Coach is monitoring your investment accounts very closely, rebalancing when necessary, and tax loss harvesting if possible.
Our team at Financial Coach publishes a weekly podcast, Untucked, where we discuss investor behavior during times of volatility. We recommend listening to this (below) instead of your daily news programming.
Thank you for continuing to hang in. Should you have questions, concerns, or just need a pep talk, please do not hesitate to give us a call. We also recognize the growing concern around the Coronavirus and are willing and able to host meetings via FaceTime or Skype, should you choose.
– Your team at Financial Coach
*JP Morgan Asset Management’s Guide to the Markets, page 13
Wisdom to Share with Your Clients When the Going Gets Tough
By Scott MacKillop – March 04, 2020
Despite market volatility, do not abandon an otherwise sound investment strategy.
Most people are surprised to find that they hold the key to their own investment success. But it’s true. An investor’s behavior is the most important factor in determining success.
Here’s why. You can be invested in the most perfect portfolio, but if you abandon the strategy before it has a chance to work for you, you won’t be a successful investor.
Most people abandon their strategy for one of two reasons. Either they lose heart because of declines or volatility in the market, or they become fearful based on world events.
Neither of these reasons justifies abandoning an other wise sound investment strategy.
Be Strong in the Face of Market Declines
Over time, the stock market goes up. As you can see, the road is bumpy, but the long-term trend is distinctively upward. From 1950 through 2019 the stock market rose on 53.7% of the trading days. On average, it rises a little more on up days than it declines on down days.
Growth of the US Stock Market 1926-2019
This pattern is not random or accidental. There’s a reason for it. The market is ultimately driven by increases in the earnings of the stocks traded on the market. If earnings continue to increase, the market will continue its upward trend.
But will earnings continue to rise? Over time it is highly likely that they will because earnings increases are driven primarily by human behavior that is hardwired into our being.
Maslow’s famous “hierarchy of needs” tells us that people are driven by the desire for survival, security, love, status and self-actualization. In other words, people strive to improve their lot, provide for their families, gain approval and recognition and become the best they can be.
These forces are expressed through hard work and creativity. When individuals band together in collective efforts, these forces can be amplified. In a commercial context, they produce growth, increases in productivity, and innovations—the drivers of increased earnings.
Our global community is comprised of 7.8 billion people striving to improve their personal situations and the lives of those they care for. If they have the freedom and incentives to do so, they will continue to find ways to create value through their labor.
Neither bear markets, nor discouraging headlines will deter them. In fact, adversity may accelerate their efforts. Necessity is the mother of invention.
Bear markets are unpleasant, at best, and can be downright scary. But they are temporary conditions that pale in comparison to the power of bull markets.
Since 1926, there have been 11 bear markets and 12 bull markets. The average bear market lasted just 1.3 years, while the average bull market lasted 6.6 years. Average losses from bear markets were a cumulative -38%. Average gains from bull markets were +339%.
A History of Bull and Bear Markets 1926-2019
It would be nice if it were possible to benefit from the bull markets and avoid the unpleasantness of the bear markets, but, alas, it is not. Securities markets are complex adaptive systems that are driven by many variables. It is impossible to account for all of them.
There are no academic papers or rigorous examinations of market timing systems that support the consistent success of that approach to investing. Many demonstrate its shortcomings.
As legendary investor, Warren Buffett put it: “…the only value of stock forecasters is to make fortune tellers look good.”
The only reasonable alternative is to remain invested through the difficult times. This requires strength and resolve. But cultivating this capability is essential for investment success.
Don’t Invest Based on the Headlines
The other reason that causes investors to abandon their investment strategy is fear driven by world events. Like abandoning a strategy because of market declines, this is a bad idea.
As you can see below, despite wars, natural disasters, financial crises, terrorist attacks, trade wars, pandemics and a host of other negative news a dollar invested in the stock market in 1970 turned into $54 by the end of 2018. Economic growth consistently trumps negative news.
Growth of a dollar: MSIC World Index (net dividends) 1970-2018
Despite constant headwinds, we make progress. The world is an objectively better place today than it was 50 years ago. For most people there’s more freedom. There’s more wealth. Infant mortality is down. Literacy rates are up. People live longer. Investors have benefited.
You can see that recoiling from the financial markets every time there is gloom on the horizon is a poor strategy. Disconcerting events and unpleasant surprises are a constant reality. If you waited to invest until there was smooth sailing, you’d never put your money to work.
The fact that the world is so full of potential danger and uncertainty is actually a good thing. Investors are paid to take risk. If there were no risks, there would be no returns.
You Have Control of Your Own Behavior
How will you deal with the inevitable ups and downs of the markets and the constant stream of negative news? The answer to this question will determine your success as an investor.
The sheer force of 7.8 billion people trying to improve their lives will ultimately push markets higher. It will not be a smooth journey, but if you are patient and disciplined, it can be a rewarding one. You hold the key to your success as an investor.
Scott MacKillop is CEO of First Ascent Asset Management, a Denver-based TAMP that provides investment management services to financial advisors and their clients. He is an ambassador for the Institute for the Fiduciary Standard and a 40+ year veteran of the financial services industry. He can be reached at email@example.com.
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