money for sale
The past week of stock market declines has pushed the S&P 500 into correction territory for the first time in two years. Although still in a bullish uptrend, the S&P 500 officially fell into correction territory on Thursday, more than 10 percent below its record hit in January.
One theory as to why the market may be correcting now is fears that the economy is too strong and complacent. The fear is that this could lead to inflation, which may cause the Federal Reserve to raise interest rates too quickly and dampen growth.
Another concern is that the search for yield over the last 8 years and the low interest rate environment have created an extremely risky situation for retirement income planning. The threat of higher interest rates creates uncertainty in the stock market, as it can make stock dividends less attractive. Remember, uncertainty causes volatility that can lead to sudden corrections in markets.
An obvious lesson for investors during this period of volatility is that periods of uninterrupted returns don’t last. A correction is a normal part of reversing. When the markets correct, you cannot control its duration or severity, but you CAN control how you respond.
The recent dramatic pullback in stocks has created a buying opportunity if you follow the “buy low, sell high” stock buying theory. I have no idea where the market goes next. It may continue into a longer-term correction or it may go back to its January highs. One thing is for sure, he had to put some money to work if he was smart enough to take some profit off the table at the end of 2017.
This brings me to an important point of clarification: if your financial advisor didn’t put at least some money to work on this fix, you need to FIRE THEM!
The job of a good “Financial Advisor”, no matter what they’re called: CFP, CHFC, etc., is to make sure you’re properly assigned and have money available to buy shares when they go on sale. He is paying you to keep him calm and help prevent you from panicking and selling your investments at the wrong time. Also, his adviser should have made sure he didn’t get greedy in this bull market and took steps to help him make some profit so he would have money to deploy when stocks got cheaper.
Please understand that I do not condone “market timing,” which is specifically being “all in” or “all out” of the market at any given time. However, it is extremely important to have a methodology for buying and selling investments.
Also, if you are nearing retirement or already retired, it is vitally important to understand that avoiding major market declines is the key to long-term investing success. The long-term results of avoiding periods of severe capital loss will outweigh the short-term lost profits. Small adjustments can have a significant impact in the long run. The best money managers I know have always been adept at working around their positions by using a set of rules to help keep emotions out of the trading arena.
By the way, do you remember that risk questionnaire your advisor made you fill out when you opened an account? How do you feel about it right now? How are you going to feel if we are in a declining market for several months?
Risk quizzes will never give you the correct answers you need to succeed in the financial markets. Your portfolio should always be built (and closely monitored) to offer a sufficient rate of return to meet your long-term goals with as little risk as possible. Your risk appetite will constantly change, so you need to build a set of rules to follow in any market environment to help you with that goal.
Unfortunately, the only real job of most “financial advisors” is to pool assets to earn a residual fee. You’d think their services include “buying on the dips,” but they don’t, unless you’re one of their major customers. You see, you don’t have time to gather assets and keep an eye on your account. There isn’t enough time in the day (or you could be on one of your sales prize trips that you won by capturing more of your money). The Financial Advisor’s mantra is “buy and hold.” This way, he can continue to make money on his account, whether it’s going up or down.
If you’re lucky enough to be invited to investment house functions like dinners, golf outings, and other events, but you weren’t important enough to put money to work during a market sell-off, then you’re being cheated. You are the one paying for those lavish dinners with the management fees you pay. However, you are paying for incompetence. You are paying mediocre interest on your valuable assets.
Not only are you not getting attention to your ENTIRE financial situation, you’re not even getting the courtesy of going the extra mile with your portfolio that they manage. The least you should expect is some attention to your account and some action to put money to work at the right times. That’s what you’re paying them for, right? You can pay for many of your own dinners if your adviser is buying money on sale for you!
This week was a true test to determine the real value of your Financial Advisor. I should have prepared you to have money available to buy on the dives. I should have put some money to work during this solution. You should also make sure to keep some dry powder in case the market continues to fall.
The dips came and you had the opportunity to buy shares on sale. Did your financial adviser do that for you?
If it did, make sure you hang on to that adviser! If not, there are only two words that make any sense at this point:
YOU ARE FIRED!