Our recently completed Wealth Advisor Confidence Survey™ 2019 found that nearly 90 percent of independent financial advisors and CPAs expect at least one more double-digit stock market correction over the next 12 months. Again, they don’t necessarily think we’ll end 2019 in negative territory, but they do think we’ll see some jarring bumps and potholes along the way.
Last week the bull market quietly celebrated its 10th anniversary, making it the second-longest running winning streak for stocks in history. Your clients who remained fully invested over that period were amply rewarded to the tune of + 305%. But alas, not all of them followed your advice and much of the American public simply missed out.
As Matt Phillips noted in The New York Times, “The psychological and financial damage inflicted by the 2008 financial crisis and the ensuing Great Recession continue to weigh heavily. Fewer people are invested in stocks than before the meltdown and many of them are wary of taking their gains for granted,” Phillips added.
That’s not very smart and several of clients have explained why in the national media recently. Here are some excerpts:
“Volatility returned to the markets in a big way in 2018, though the absence of volatility is a more abnormal market environment,” observed Anthony Glomski, founder of Los Angeles-based AG Asset Advisory and author of the book Liquidity and You, an exit planning guide for successful tech and business entrepreneurs. “These conditions are often amplified in the tech sector and can be viewed by patient long-term investors as opportunities to buy stocks that perhaps haven’t been discounted for years.”
Chas Boinske, CFA, head of Independence Advisors in Wayne, PA said that while it’s difficult to remain calm during a substantial market decline, it is important to remember that volatility is a normal part of investing. “Additionally, for long-term investors, reacting emotionally to volatile markets may be more detrimental to portfolio performance than the drawdown itself,” Boinske added.
Matt Topley, Chief Investment Officer of Fortis Wealth (Valley Forge, PA) said the surest way to go broke in stock market history is to try to predict market declines. “The U.S. stock market has experienced a dozen 20-percent corrections over the last 70 years and the market is still up by a total of 15,000 percent over that time. The market really works and managing money is not about what you know, it’s about how you behave,” added Topley.
James Nevers, CFP, an adviser with Soundmark Wealth Management (Kirkland, WA) abides by the adage: “Time in the market always beats timing the market.” Since no one can consistently predict what the market will do in the short term, “the best any of us can hope to do is to capture as much of the diversified global markets return as possible,” explained Nevers. “Sure, there are plenty of examples of people getting lucky, but there are just as many stories of people losing it all on a ‘sure thing’. When you are constantly looking at when to get in and out of the markets you lose focus on the long-term probability of winning by participating.”
While market volatility can be nerve-racking for investors, “reacting emotionally and changing long-term investment strategies in response to short-term declines could prove more harmful than helpful,” noted Boinske. “By adhering to a well-thought-out investment plan, ideally agreed upon in advance of periods of volatility, investors may be better able to remain calm during periods of short-term uncertainty.”
According to Nevers, “the less you look at your portfolio, the less you will feel regret and uncertainty caused by daily, weekly or monthly declines in the market. The less you look at your portfolio the less chance you have of making an emotional decision to get out of the market and stop participating,” said Nevers.
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