This weekend I was at a flag football game for my 8 year old son and was talking to another dad who is also a professional colleague at another firm. While watching our boys warm up, we typically exchange a few words about business. Between the two of us, we have almost 50 years of experience and often have similar perspectives in the advice we give clients. This week we talked about how clients were responding to the Washington D.C. drama and decided there were two simple things clients should do.
- Ignore the media. My day starts early. I am usually at the gym before they open at 5 a.m. and like to watch the financial channels as I do my warm up run to see what has happened overseas and to get an idea of the early futures. This morning I had to laugh out loud. The guest was from a well-known institutional investment firm and was speaking about their extremely positive outlook for the equity markets. But every time the guest told the reporter how bullish they were and presented evidence to support their position, the reporter followed up with a counter statement asking if the very strength was of the market was an indicator that it was soon to regress. There was nothing the guest could have said and no amount of evidence the reporter would have accepted to conclude that there was no reason to panic. It also made me think of something the other dad mentioned this weekend; if Jesus walked across the Sea of Galilee today tomorrows headline would read "Jesus Can't Swim"!
- Don't do anything. Ten months ago the Fiscal Cliff was going to be the beginning of the end. Remember when airplanes were going to fall out of the sky for Y2K? Every few months there is some upcoming crisis, some real – some manufactured, and all sorts of pundits tell us how to adjust our portfolios. The effect is never as bad and the duration is never as long as the doom Sayers predict. The simple truth is that there is an equal amount of risk in trying to outsmart the situation through market timing, than there is in just buckling down and riding out the storm. Remember when we were told in 2008 that a drop of 50% in the market required the markets to subsequently grow 100% to get back to where we started? Where would you be now if you went to all cash right before the financial crisis? Essentially, your assets would have remained stable but not seen any growth in our near zero interest rate environment. In inflation real terms, your money would have less buying power than it did in 2007. But if you had remained fully invested you would have had a wild ride but your money would be worth more today, even considering inflation, than it was before the financial crisis because from March 2009 to September 2013 the S&P 500 is up 145%!
Asset allocation is important. When a portfolio is properly distributed, crisis situations like these need to be considered and matched to the investor's needs, time frame, and risk tolerance. If the debit crisis or the potential for a government default is a troubling concern for you, chances are your asset allocation is askew. Instead of reacting to the situation, we would suggest you take action and schedule a meeting to review your portfolio with us.
The S&P 500, or the Standard & Poor's 500, is a stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ. The S&P 500 is widely used as a measure of the general level of stock prices. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. It is not possible to invest directly in an index.
This material is provided for informational and educational purposes only. It should not be considered investment advice or an offer to buy or sell securities. Any securities mentioned are for illustration purposes only. All economic and performance information is historical, unless otherwise indicated, has not been verified, and not indicative of future results. There can be no assurance that the financial concepts and strategies presented in this material will be successful. Investments are subject to market fluctuation, risk, and loss of principal. Past performance is not a guarantee of future success. Every investment strategy has the potential for profit or loss.