Four decades of advising clients
In the fourth decade of advising clients, stuff still surprises us. Here is a timeline of market shocks we’ve helped navigate clients through over the years:
Did we see any of these coming? A resounding “no.” Did anyone? ”No.”
How does anyone build wealth if markets are unpredictable and prone to periodic dramatic selloffs like we’re currently experiencing? The answer is patience, prudence, and support. Most individual investors do it with the help of a professional.
A frequent comment we hear from new clients is about how their advisor is a nice person, but they don’t hear from him or her that often, (and especially when things are going badly). Or “I don’t really feel like I have a plan.”
The most important factors in selecting an advisor are these: do you trust them? Are they independent of a big bank? Do they charge commissions or an asset-based fee? In other words, are your interests aligned? Most important, are they a fiduciary? This means they are legally bound to put your interest ahead of their own, always.
Ask a good friend, family member, or trusted colleague who they use. Interview more than one.
Once you’ve selected someone, they need to understand you. They need to understand your long-term goals, your risk profile, and what keeps you up at night. They need to come up with an overall plan for your investible assets across all of your investments to make sure you aren’t taking too much (or too little) risk. In short, you need to have a philosophical alignment of how you should be invested.
How does ClearRock manage clients through periods like this?
How can they continue to build wealth even through days like today? The short answer is diversification. Most savvy investors know by now that not putting all your eggs in one basket is a time-tested wealth-building strategy. As we discussed in detail in our 2019 Q3 Global Market Update, the reason it works is simple: good math.
By not putting all your eggs in one basket (a single company or single asset class such as U.S. Equities, for example), it allows you to spread the risk across additional baskets (Fixed Income and Foreign Equities, for example). Therefore, you aren’t entirely exposed if that one company or asset class does not perform in the way that you had hoped. Diversification does not limit your risk to losses entirely, but as math dictates in the below chart, meaningful diversification equates to less time needed to recoup losses.
But perhaps the biggest benefit of a diversified portfolio is the behavioral benefit. Just as you don’t get overly excited when markets move straight up (as it did in 2019), you likely won’t freak out over what’s happening now. We know your advisor shouldn’t be either.
We also understand that you have lives outside of your investment portfolios and you prefer to live your lives without the need to constantly worry. Financial advisors not only exist to alleviate your worries, but they also exist as a tremendous filter for the myriad sources of financial information floating around.
If you are thinking about the following, STOP:
- “Maybe I should sell everything and wait until the dust settles to reinvest.”
- “I don’t want to lose more money than I have, so I should sell and keep cash.”
- “I’m pretty sure this is the top, so I’ll sell now and wait until the bottom to buy again.”
Behavioral finance states that investors feel far more pain during periods of losses than the pleasure you derive during periods of gains. And that’s probably how you are feeling in this current market. That is completely normal. We’re here to tell you not to panic and to remind you that markets go up over time. The grey bars in the graph below? Those are recessions. With a long-term perspective, they look a lot smaller than when you might have experienced them in real time, don’t they?
If you still have reservations about today’s current markets or think a simple conversation might help alleviate some of your concern, we are standing by. Even if you’d just like another set of eyes on your current investment portfolio, we’re happy to take an initial complimentary pass. As we always tell our clients, thank you for the trust you have placed in us. We strive to earn it each and every day.
What You Should Do Next:
- Contact us with any questions or concerns about your investments, the financial markets, or for more information on how we’re helping our clients.
- Read our article on 6 Ways to Navigate the Coronavirus Market.
- Click here to learn more about the ClearRock approach and process.
- Speak with one of our Senior Advisors.
Some material in this article is based on information from a variety of sources we consider reliable. However, we do not represent that the information is accurate or complete. The material provided herein is for informational purposes only. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from ClearRock Capital, LLC. If the reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, then he/she should consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.