6 minute read
investing
Don’t let turbulence distract you:
KEEP YOUR FOCUS ON
8Boerne Business Monthly | April 2020 I by Matt Nelson – Managing Director, San Antonio Market, Prime Capital Investment Advisors I’m sure you’ve heard the saying, “remove your emotions from investing.” In the turbulent times that we are in right now, that is easier said than done. It does not matter if you own real estate, stocks, bonds, mutual funds or private companies/equities. You’ve probably also heard that we have never seen anything like this before, this time is different. That statement is true, but not so true. While it may be a different headline, statistically speaking we have seen a market/economic behavior similar to this before and likely will continue to see it in the future. History does not predict the future. However, this is not uncommon; it is how you react that will determine what your financial situation looks like long-term. Past Major Downturns and Headlines
In the past 20 years, we have lived through two major downturns in the market and economy that many thought we would not ever recover from. We had the tech bust or dot com bubble and 9/11 in the early 2000’s... Then, we had the global financial crisis in 2008-2009. But did we recover from these major events and have the longest bull market in the history of the stock market and have a robust economy with low unemployment? We did. Market Volatility – Sticking to your plan
The last 31 years have provided an average intra-year drop of -13.5%, yet annual total returns were positive 25 of those 31 years (80% of the time). 1 “Timing the Market” typically makes recovery harder – if not impossible. Over the past 20 years, the best 10 days in the market have been essential to growth. Seven of those 10 days occurred within two weeks of the 10 worst days. 1
While periods of sharp selling and investor angst is hard to stomach and causing further anxiety, we urge investors to keep a long-term perspective and avoid panic selling; only exacerbating the sell-off and potentially causing more harm to long-term investment objectives by missing a potential rebound in global markets. Having a Financial Plan can Create Calmness
Whether you own a business, work for a small business, work for a Fortune 500 company or are retired, we feel it is imperative to have a financial plan in place.
Even though it is tough to do, removing emotions from the decision-making process and to striving to not make rational decisions may dramatically impact your long-term financial plan. Having a financial plan in place and sticking to it can create calmness during volatility and times of uncertainty. Looking back historically and building the historic data into your financial plan can give you the sanity and peace of mind you may need. If you already have a plan in place, stay committed to your financial plan and strategy.
If you do not have a financial plan in place that is updated daily based on market fluctuations and real estate changes, business valuations, etc., we highly encourage you to take the time to work with an advisor and put one in place. Why is Rebalancing so important during big market selloffs and gains?
Rebalancing your portfolio is very crucial during big market moves. Why? If you have a 60/40 allocation (60% equities / 40% fixed income), big market moves in either of these asset classes can dramatically change this allocation. If the 60% in equities (due to equity selloff) gets reduced to 45%-50%, when equities recover it typically takes longer to recover, as you did not have the same THE LONG-TERM
percentage in equities as you did during the selloff. This may happen in a long bull market as well, where the equites percentage may get much higher than the desired 60%/40% allocation. Thus, you may have 70%-75% equities, thus much more aggressive than you intended to be. It is important to rebalance your portfolio constantly, especially when your portfolio has drifted away from your financial plan and desired allocation.
Are you Truly Diversified?
We find that so many people think they are diversified by owning stocks, bonds and mutual funds inside their portfolio and that is it.
Unexpected risks like the COVID-19 virus outbreak are impossible to predict. However, it’s times like this that really highlight the value and benefits of a focus on true diversification and quality investments. In the past month, we have seen sharp declines across the board in stocks, bonds, REIT’s (Real Estate Investment Trusts), oil & gas and many other major asset classes.
Now is a good time for everyone to complete an analysis to see if they are truly diversified into all asset classes and invested properly based upon their risk tolerance and objectives.
Alternative Investments – These are asset classes that sometimes get overlooked to help diversify an overall portfolio. These may be worth exploring during volatile times in the stock and fixed income market. There are qualifications that need to be
BBM Are you positioned for the future?
Nobody knows how long COVID-19 will affect our health and finances. We cannot predict the future. However, we can learn from the past. I am a firm believer that we will recover from this downturn and there will be many opportunities in the future. It is important to stick to your financial plan, don’t make irrational decisions, assess if you are truly diversified and invested going forward based upon your risk tolerance and objectives.
If you would like to discuss any of these topics, please call our office at 830-816-5131.
Matt has been in the financial services industry for over two decades. Due to Matt’s tenure, he has a wealth of experience assisting high-net-worth individuals to work through a multitude of financial challenges to develop a holistic approach to wealth management and asset protection. He also works with many large corporations throughout the Midwest and Southwest handling their retirement plans. Specifically, he consults with plan sponsors regarding fiduciary protection, vendor search, and selection as well as face-to-face participant education. Matt’s approach to these services begins with a strong relationship with his clients by understanding their needs, listening to concerns, then coordinating with tax and legal experts to develop a holistic plan. (830)816-5131 | 616 E. Blanco, Suite 201-A, Boerne, Texas mnelson@pciawealth.com | pciawealth.com
1. J.P. Morgan Asset Management The preceding commentary is (1) the opinion of Matt Nelson and not necessarily the opinions of PCIA, (2) are for informational purposes only, and (3) should not be construed or acted upon as individualized investment advice. Investing involves risk. Please seek the advice of a tax professional. Advisory services offered through Prime Capital Investment Advisors, LLC. (“PCIA”), a Registered Investment Adviser. PCIA: 6201 College Blvd., 7th Floor, Overland Park, KS 66211. PCIA doing business as Qualified Plan Advisors (“QPA”) and Prime Capital Wealth Management (“PCWM”).
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