Broker Check

What have I learned?

March 08, 2022
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When we go through tough periods such as the one we are in, I try to take time and reflect on the mistakes I have made in similar situations. I have made decisions that have lost my clients money, and have made others that have saved them, but one theme rings true... Situations like this are never easy.

As I sit here writing this, Russia is invading Ukraine and shelling innocent citizens, the President is about to ban Russian oil (which is selling for north of $130 a barrel), inflation is running rampant (above 7%), and the Federal Reserve looks like it is about to raise interest rates multiple times this year.

As we take this all in and watch the assets of our 250 client families go down, with seemingly no end in sight, we try to remind ourselves of past mistakes, and triumphs, that got us to where we are today. I decided to summarize these thoughts into 10 admonishments:

  1. Surround yourself with competent, knowledgeable associates who possess the listening and technical skills to effectively operate sophisticated financial software. Then, trust them.
  2. Strive to act as a Fiduciary by constructing comprehensive financial plans designed with a goal to meet the goals of each client. Help them stick to their dreams.
  3. There will be innumerable unexpected political and economic events that will seriously rattle the stock market. You cannot predict these events. Likewise, nobody can time the ideal time to buy or sell. Don’t allow these external forces to derail the well designed portfolios that meet your client plans. Stay focused on the mathematical probability of long-term success. It won’t be easy. It never is!
  4. It’s not the periodic stock market corrections that derail a retirement plan. The real causes are: lack of thoughtful planning; overspending by the client; an investment portfolio that is too aggressive in the years leading up to retirement; Or, too conservative to provide enough growth to withstand inflation.
  5. Understand and respect the valid concerns of your clients. Many find the equity markets disquieting whenever they witness their portfolios suddenly going down in value. Oftentimes, they mistakenly extrapolate those returns into the future. The future to them looks like the present. That’s not true.
  6. There was a period of 12+ years when the S&P 500 Index had a ROR of zero (2000 to 2012). For those who were withdrawing (distributing) money from their accounts in retirement, it was devastating to sell equity to provide that income. Recognize this could happen again.
  7. Don’t panic and sell when these events occur. Follow the sage advice of Warren Buffet. He says, “ When amateurs get greedy (buying when the market is roaring), I am frightened; when amateurs get frightened (sharp decline), I get greedy.”
  8. To mitigate that dilemma, solve the stock market volatility issues BEFORE they happen, not AFTER they happen by utilizing time tested Principles of Asset Allocation.
  9. Prudently construct portfolios that are neither too aggressive nor too conservative. Both will eventually cause unnecessary pain. For those who need income, include sufficient non-equity (bonds, alternatives and cash equivalents) holdings to provide for their income needs for several years. Otherwise, hold equity for growth. Acknowledge that technological innovation drives the future. Always has, always will. Embrace it for those clients who can tolerate the volatility.
  10. Constantly explain these realities to your clients. If investors understood these truths, they won’t need you. They hired you to abide by these sound principles.

Hopefully this gives more insight into our thinking and reinforces some of the philosophies we have shared in our meetings. We want you to know we are always available to support you and your financial goals, so please reach out at any time.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Asset allocation does not ensure a profit or protect against a loss.