One of my favorite quotes of all time is by that great investor… Mike Tyson! To quote Mike, “everybody’s got a plan until they get punched in the mouth”. Most, if not all investors, have just “gotten punched in the mouth” by this falling market.
The question is not “did you get punched” but what are you going to do about it?
I continue to be shocked and somewhat saddened by the guidance that some advisors and most media outlets are giving: “Stay the course”, “Don’t look at your 401k”, “This too will pass”. I guess we are just too far removed from the 2008-2009 debacle.
In my opinion, you must pay attention to what is happening in your portfolios. Why? Let’s take a step back and review. One of the truly bright spots in the investment advice business is that in the last decade clients and advisors have embraced financial planning and asset allocation. Well done! It’s time to pull out that plan and sit down with every client to reassess their goals and aspirations. If the plan was done recently, most of the “facts” are still up to date. What is not in place is the client’s asset allocation and proper diversification.
One of the basic rules of investing revolves around rebalancing a portfolio when it gets out of balance. It is time to address that issue with every client. For example, if a client’s portfolio is to be invested 60% equities and 40% bonds/cash, the reality is that the equity portion is now well below 50%! If the client’s time frame is long enough, getting them back to a proper portfolio balance will achieve their long-term goals.
Let me give you a couple of facts that might help you with these clients:
The S&P 500 started in 1825. One hundred and ninety five years ago. Year over year the S&P 500 has been down over 30% only-- THREE TIMES. That means 98.5 % of the time it has performed better that the market we are in. (As I write this the S&P is down 25% ytd and 29% from its all-time high.)
Bond yields are approaching zero and could even go negative. The Federal Reserve has stated that they are going to keep interest rates low for the foreseeable future. How are you going to get the needed return for a client if your bond/cash portion of their portfolio yields virtually ZERO. (By the way, the S&P 500 currently yields 2.42%)
Back to Mike Tyson. Your clients and you had a good plan for markets like this. Are you going to abandon that plan and “stay the course”? If you do, there is a good chance that a “knockout punch” is on its way. As an industry, we can do better!