We presume you would be hard-pressed to find anyone in your circles that isn’t aware of the recent global market volatility, so, we thought we would reach out to provide some perspective. While calm is contagious, so too can be concern.
Bottom line up-front; we (and you) should fully expect these “corrections” (down 10%) and, occasionally, “bear markets” (down 20%) to occur as part of economic cycles. They are both inevitable and normal. And, honestly, this one was long overdue.
Currently, U.S. large cap stocks (as measured by the U.S. S&P 500 index) are down ~12% from the record high set on May 20th last year – other asset classes are down more, and some are down less. This is the case for diversification.
In line with our strategy, we have taken advantage of this correction by investing cash which had accumulated in accounts from year-end dividends and distributions as well as planned cash phase-ins; in a few cases, even accelerating some tranches. Based upon historical evidence (to include the recent Great Recession), we confidently anticipate returning to record highs and exceeding them prospectively. Of course, no one knows exactly when this will happen.
In the interim, we recommend market investors continue to buy at a discount to market highs, deliberately re-balance portfolios (which forces one to buy low and sell high), and tax loss harvest. In other words, no change – stick to the strategy. By investing capital in your long-term portfolio (not anticipated to be needed in the next seven years) in the more volatile markets (e.g. stocks, medium to long term bonds), we can ride out the ups and downs.
One of the many good reasons to stay in dialogue with your advisor is communicating any changes to your short-term needs (less than 1 year) and medium-term needs (between the next 2 and 7 years). Protecting your short and medium-term needs (portfolios) from the volatility that accompanies investments more typically found in long-term portfolios, allows your financial plan to remain sound and goals achievable.
Our approach is to take what the market gives us, to stay consistent with the strategy, and to keep the emotional brain in check (which implies keeping the rational brain in charge).
Posted on Tue, January 19, 2016
by Kimberly Pauley filed under