Investing Disaster

Investing – Is Your Discipline A Disaster?

As of the end of 4th quarter 2018, the markets and everyone in them experienced a beating. The past has a way of repeating itself and it certainly did in the market last fall.

The bull market enjoyed for over nine years, which was and still is extremely overbought and in desperate need of a correction, experienced a correction…and then some. Interestingly, most of it happened in just one month, December. Was this a harbinger of a coming bear market cycle shift? It’s hard to tell but it certainly recovered quickly which was just as unusual historically as the speed in which it fell.

This correction and the specter of a bear market raises an important question: how do you seek to protect yourself from the inevitable big bear down-drafts? This is an especially critical question for those on the verge of retiring or who may have just entered retirement but is applicable anyone planning their retirement…which should be every working adult!

You don’t need much of a history lesson to recall the dramatic downturns that have followed periods of prolonged market gains. Need a few examples? How about the 2001 S&P *downdraft of almost 50%? What about the 2008 downdraft, which most remember best and for good reason. And here we are again, only this time, the down draft came much harder, much faster and with little to no warning.

Additionally, we don’t yet know if it’s really over, hanging out or just gearing up for another run south of the border based on the next news story. So, how did your investment portfolio fare? What was your written and defined strategy beforehand to make adjustments to your plan given the downdraft?

Our own strategies and portfolio disciplines have adapted and changed through these experiences over the years. Our quest for a better way started in 1994 and continues to adapt and change as our world changes. This should be the case with any good risk manager.

We’ve hired mutual fund** companies, really smart third party managers and a variety of other “traditional” portfolio management techniques over the years. We’ve been too conservative at times, but rarely too aggressive with the next ‘big drop’ right around the corner. I may not be the sharpest tack in the box, but it doesn’t take a genius to figure out that investing is about seeking to make and preserve money; not ‘holding on’ come what may. Burying ones head in the sand rarely results in a clear view of what’s headed your way.

The problem with these “traditional” institutional approaches lies in the fact that if you advisor tells you they are going to buy large company stocks located in the U.S., or any other asset class then that’s what they have to own – always; it doesn’t matter if that asset class is doing well or not. The “system” assumes you should just hold on.

Another problem lies in the fact that many in my industry are primarily commission-driven salespeople. People do what they are paid to do. If an advisor gets paid to sell financial products and not to build long-term relationships designed to help people manage their investments over the long-term, then you’ll get a lot of selling of products but very little money management advice.

There’s nothing wrong with selling financial products, mind you. But the emphasis on selling doesn’t create an environment where the average advisor ever thinks about really managing the money. It’s more for advisors to do what their corporate office, the mutual fund companies and third party managers teach them to do – send them the money and get good at telling the client to just hang in there and keep diversified.

What if you knew ahead of market events when you would exit or enter the market in your portfolio and you had a plan that specified all this? This doesn’t mean you won’t see volatility one way or another, it simply means you have a disaster plan that seeks to limit the volatility in ugly times. What if you seek to buy the areas of the market that show the best probability of performing well and get out of those that are underperforming? What if you built defensive indicators into your portfolio that signaled when probability of loss is high and that you should exit? Or, indicated when you should be entering markets during periods of bullish probability?

A retirement strategy with this kind of flexibility and contingency planning requires some work; however, the result could be less dramatic downturns over time, which means that you don’t have to fight to make up all the losses of the broad market with all its unmitigated risk.

What about terrorists or other black swan events? At best, market response is temporary to high emotion events while being more resilient in reflecting the value of believed future revenues of companies. When high emotion events occur, the fundamentals will eventually come back to the forefront.

So having just recently experienced yet another ugly market event, I’d suggest that you figure out how to best preserve current values the best you can. There will always be years of volatility up or down but bear markets don’t have to be scary.

If you need help in guiding your retirement plan in a clear direction, let us help. We’ll provide a complimentary, no-obligation assessment and some proactive recommendations that will help you get out of the “just hold on” mentality.


* Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices do not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends. The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. It is a market value-weighted index with each stock’s weight in the index proportionate to its market value.


**Mutual Funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing in Mutual Funds. The prospectus, which contains this and other information about the investment company, can be obtained directly from the Fund Company or your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.



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