We have spent much of the last few weeks (and especially the last few days) speaking to as many concerned clients as possible. Many have reached out through a variety of mediums including email, text, and phone calls. You can call, email or text me (or any member of our team), anytime, for any reason whatsoever.
In speaking with more than 50 clients over the last few days there are several consistent themes, frustrations, and concerns that we’d like to share with you as well as the guidance and perspective we provide during these times.
Ultimately, our conversations break down into two primary themes: Those who are concerned but are looking to try and take advantage of the market selloff and those who want to consider "reducing risk" or going to the sidelines entirely.
The underlying theme is that many feel an overwhelming need to just do something.
We heard loud and clear how sitting and taking these market downdrafts day after day makes us feel powerless, scared, and frankly, frustrated. Those feelings are all completely understandable given what we are going through.
Maintaining financial discipline and not acting on emotion is by far the most difficult thing do to during a market panic. What helps is a clear understanding exactly what you own and why you own it.
Additionally, trying to put things in perspective as it relates to your life goals, the history of the market and what to expect in the days, weeks, and months to come.
We build your portfolio and make every decision based on your life, not the market. This is true in good times and bad.
Your holdings are based on your specific life goals and the respective timeframe. We overlay this information with an overall risk tolerance of how you can handle a downturn. It's always easier said than done, especially when faced with this type of violent volatility.
However, we do not, and will not, make changes to your portfolio due to the market, political climate, or factors out of our control.
Like Warren Buffet, we believe it is impossible to time the market. This is just as true in these turbulent times as in times of greed.
This is not jargon or jawboning. It is discipline with real consequences.
Yes, this makes the decision to stand pat extremely frustrating during a crisis, but it's important to remember that no action is still an action.
And since market timing is impossible, riding out this historic decline is how ensure you participate in the recovery when the firestorm of terror burns itself out and the permanent advance resumes.
Since these decisions are based on a strategic plan focused on your goals; excluding major life changes, not reacting emotionally is the best and safest option to take during this time. The famous Jack Bogle quote of “don’t just do something, stand there” has never been more relevant.
A mistake now makes this temporary decline a permanent scar on your financial life.
Below is a brief overview of exactly how we design and built your portfolio. Through yesterday these numbers are right in line with what we have previously discussed and doing exactly as they should be during these volatile times.
Bucket 1 This is the Conservative Bucket. This bucket includes your cash in the bank as well as any funds that you might need in the next three years. This bucket is your emergency fund. The investment (i.e. non-cash) portion of this bucket generally has 15% to 25% of the downside of the market and typically provides dividend income of around 3% annually.
Bucket 2 The Moderate Bucket. This bucket represents money intended to be used the next 4 to 10 years. This is also a good vehicle for those who intend to use this money for 10 year or longer periods, but simply can’t take the full volatility the equity market brings. This bucket generally has 50% of the downside of the market with dividend income of approximately 2.5% annually.
Bucket 3 The Growth Bucket. This is meant exclusively for money that is not to be used or needed for 10+ years. This would include pure stock ETF’s and individual equities. This bucket has no downside protection and gets 100% of the upside and provides about 2% average annual dividend income.
To offset the feeling of “don’t act” about making portfolio changes, below are actions to take right now to provide clarity and peace of mind during this difficult time.
Contact Us. Just like the medical community should be your source of medical information; we should be your primary source for financial direction. If you are concerned, reach out to us. Whether it be a phone call or meeting, it will do wonders to help calm your nerves and put things in perspective. Getting advice from the media, family members or friends on what to do on the financial front during these times is potentially very hazardous; don’t do it.
Invest Additional Cash. We are not talking about your emergency fund. We're talking about additional cash you planned on investing but have not yet put to work. It just doesn’t get much better than this to put money to work so don’t wait. How do we invest it? We look at the purpose and timeframe of the funds and invest accordingly.
Portfolio Quarantine. We highly advise putting on a “portfolio quarantine” of sorts during this time. Take a break, avoid checking your accounts as it will only lead to panic, despair or worse…action. Take a break of 3 months or more, minimum.
Media Distancing. It’s nearly impossible to avoid the news, but we highly recommend you do your best to try. Avoid CNBC and other financial outlets entirely as well as any of the news stations that are hyper focused on exacerbating the panic. Distance yourself as much as possible from most of these. Instead tune into old episodes of The Office, Seinfeld, Modern Family or you whatever floats your boat for a welcome respite and a few good laughs.
Write Down Your Feelings. A great reference for the future is to write down your exact feelings today. Write down the level of the market. Take a screen shot of the terrible news headlines. Then put it away and revisit in 6 months to a year.
Take Advantage. Unplug, spend time with family, get organized around the house, work out, get outside, work in the yard, take walk, ride a bike, read a book. Sunlight, exercise, and mental breaks are some of the best life medicines you can get. How many times in your life have you said, “I wish I just had a few days to get things done.” Well here is your chance, take advantage of it.
We’ve now firmly entered bear market territory. These, while painful, are not unique to history. There have been 16 bear markets since 1926, averaging one every six years. They last an average of 22 months.
The shortest was six months and the longest being three years and seven months.
The lasting impact of this one is yet unknown, but the key here is that, like all others before it, in every single circumstance no matter how bad the news or market reaction, we make a full recovery.
We learn from it, move on and life returns to normal.
It is difficult.
It is scary and it is frustrating.
But it is not different this time.
We will recover, move on and be better for it and better prepared the next time. Staying the course of your well-designed plan is the key to ensuring you stay on track for the long run and avoid making the big mistake.