In 30 Seconds of Less …

• Timing the Market – When the average person thinks about Wall Street and making a killing in the market, it sounds so sexy! You immediately go to the headlines of the financial gurus who called the downturn. They had the foresight to sell at just the right time, executed a strategy that made wealth because of the downturn, and of course, reinvests at just the right moment to catch the rebounding market. Their timing is always impeccable and their compensation equally enviable. Naturally, we all want in but the reality is that that very few really pull it off!

• Time In the Market – Historically, what has mattered the most is simply time. Boy, that doesn’t sound sexy! But the truth of the matter is that having the fortitude to put your money down (yes, save it first), and having the discipline to leave it there (no fancy vacations on the dividends, interest or principal gains) are the most important steps in wealth creation. By investing in a healthy portfolio mix of quality assets, revisiting the mix on a routine schedule, and then opportunistically rebalancing in downturns, your wealth will grow over time. With a normal range in returns, your investments should double every 7ish years.

To underscore this point, BofA’s Vice Chair Keith Banks sited some key statistics: “If you go back to 1930, if you had just stayed exposed to the equity market, your returns would have been around 15,000%. If you missed the top 10 performing days of each decade over that period, your returns would be 91%.” (CNBC 3/31)  WOW! That’s a huge difference.  And that is why financial advisors tell everyone to continue your regular direct deposits to your retirement and college tuition funds on schedule.

That said, retirees and those who need to pull money from the market to buy a house or pay for college tuition within a couple of years, should always have more conservative portfolio mixes heavy on high quality bonds which limit the risk of loss and provide a basic return for imminent cash needs.      

In The Weeds  –

Timing the market –  Towards the end of each bull market (a market where prices are rising and buying is encouraged), Contrarian Investment Strategies always gain traction and headlines as they forecast the downturn or the start of a bear market (a market where prices are falling and selling is encouraged.) Contrarian’s site historically high levels of valuations or stock prices across the market versus underlying corporate earnings, high corporate debt, plus dark clouds on the horizon in economic indicators and they conclude a downturn is imminent. But how imminent? Frequently, they move their portfolio mixes to much heavier concentrations in bonds, gold, and cash and limit their equity holdings which will swing wildly in a downturn. They use various tools like short sales (selling a stock you don’t have on margin with the hopes of buying it cheaper in the future) and put options (a contract to do the same as a short sale without having to put up collateral) to make money when stock prices are dropping. Yes, with 20/20 hindsight, this is exactly what we should have done in mid-February. However, the contrarian voices emerged in the late summer. From August 23^rd when the Dow was at 25,629 to Feb 12^th it continued to rise to 29,551. In many instances those hedging tools would have cost money, not made money!  

Time In the Market –  By staying in the market, you would have received dividends and bumps in overall valuations. In December or early January, you should have reviewed your portfolio with your financial advisor. Or at the least, they probably suggested and you replied back “Sure” via email to rebalance your portfolio. They probably also raised concerns about corporate and consumer debt as well as the duration of the bull market. Depending on your age and time until retirement, there may have been a discussion about being a bit more conservative (like selling some of the foreign funds or emerging market positions and buying high quality US Corporates or even buying some bonds funds). These are healthy discussion that should happen annually at a minimum and semi-annually for those of us closer to needing our retirement funds. Given the noise in the market in December and January, many of us did take on more conservative positions but we stayed in. I happened to be consolidating 401Ks into Rollover IRAs so my financial advisor and I agreed to go more slowly back into the market than usual. There’s another old adage that is so appropriate when watching the end of a bear market ~ Pigs get fat, hogs get slaughtered! Yes, we were leaving a few dollars on the table since the Dow was around 28K vs 29K. But no I didn’t take cash away to spend it elsewhere. We were just fortunate to trim a few dollars off the losses. That said, those funds are going back to work!

Most importantly, generally it only takes a few years to exceed the prior bull market peaks! So relax! #BeTheCalm!!!

Why is staying in the market so important?  We’ve already talked about timing which is critical! Our crystal balls just aren’t telling us the exact details of the best trading days or the worst.   Secondly, there is a concept called the Rule of 72 or 69.3 depending on how technical you want to get. The point is by taking a reasonable level of investment risk (remember, any time you invest you stand a chance of a loss) with a 7% to 10% return AND reinvesting all capital gains, dividends, and interest, you should be able to double your original investment amount about every 7 years. The key to this equations is plowing back into your investment any funds you get from the original investment. It’s called compounding and it’s a beautiful thing!    

As always, what can we do?

Stay healthy, continue take the long view on the market, help those who are really hurting in your community, enjoy this amazing weather, and stay wonderful!

We are leading our families, our communities, and our teams calmly through this event!  #BeTheCalm #Leadership!!!

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Happy Easter! Susie