The conference room was full with over 100 financial advisors in attendance. The speaker asked a simple question. What were two of the biggest items in the media in the last few years that all your clients were asking about?
I guarantee many of you reading this asked us about these things – and considered moving your portfolio to cash – just in case.
Can you remember? They were:
- The Government Shutdown
We fielded numerous questions about these things and spent a lot of time “talking people off the ledge” so to speak; meaning encouraging them to stay invested.
Turns out, today, no one can even remember what it was they were so worried about.
Long term portfolio strategy is not – and should not – be dictated by current events. As we stand today, risk is long forgotten (which is worrisome) but no doubt soon enough the media will find something to pontificate about and you may begin thinking “Should I cash out?”, “Should I buy gold?”, “Should I put it all in the safe….?”
If your portfolio was built with a long term goal in mind the answer will be “You should stick with the plan.”
You make the plan when you are in a sound, stable, unemotional mindset. It gives you a path to follow when current events throw you into an overly emotional or less-than-stable mindset.
As things stand right now, you may feel your plan is too conservative. In the first half of this year stocks of all kinds have seen gains with the S&P 500 up about 7% for the year and other equity asset classes delivering increases between 3% (U.S. Small Cap) and 17% (U.S. REITs). (The graph at the top shows results for each asset class through June 30th, 2014, for the month, past five years, and past ten years.)
Just as negative current events engender fear, positive current events elicit greed. When markets climb, it is easy to get greedy and feel like you could have gotten more.
I will never forget practicing in Colorado in 1998 and sitting down for a review with a client who owned a bond fund, a blue chip stock fund, and a science and technology fund. Their bonds and blue chip stocks had floundered, while science & tech was up over 90% for the recent 12 months. They insisted on moving all their money to the science & technology fund. I made them sign a statement saying this was against my advice. Over the next few years science and tech experienced unprecedented losses. Getting greedy is not part of a well-designed long-term plan.
Now is not the time to get greedy and take on more risk. Now is the time, just as during any other time, to stick with the plan.
The plan we have built for you will take into account current market gains. For those of you in retirement and taking regular withdrawals, we will be determining if we should take gains off the table. This involves measuring your accounts against your plan, assessing future withdrawal needs, and evaluating tax consequence – before any changes are made. This is our job. This is part of the plan.
*Returns data in graph above from Advisor Intelligence. When possible we report index fund returns to show performance net of fund fees. As such in the graph:
- Total Bond Market Index is: Vanguard’s Total Bond Market Index Fund(VBMFX)
- US Large Cap is: Vanguard’s 500 Index Fund (VFINX)
- US Small Cap is: Vanguard’s Small Cap Index Fund (NAESX)
- Real Estate is: Vanguards’s REIT Index (VGSIX)
- International Large cap is: Vanguard’s Total International Stocks Index (VGTSX)
- International Small Cap is: MSCI World Ex USA Small Cap Index (not a fund)
- Emerging Markets is: Vanguard’s Emerging Market’s Index Fund (VEIEX)
(Investment Sense is an almost-monthly posting of market commentary with a common sense twist. For all our latest commentary follow us on Facebook.)