money for sale
The latest 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 high reached 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 chill 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 the markets.
An obvious lesson for investors during this period of volatility is that periods of uninterrupted returns do not last. A correction is a normal part of investing. When markets correct, you can’t 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 is going next. It may continue into a longer-term correction or it may return 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 did not put at least some money to work on this correction, you should FIRE HIM!
The job of a good “Financial Advisor”, no matter what they are called: CFP, CHFC, etc., is to make sure that it is allocated correctly and has money available to buy shares when they go on sale. He is paying you to keep him calm and help prevent him from panicking and selling his 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 profits so he would have money to deploy when stocks got cheap.
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 approaching retirement or are already retired, it is vitally important to understand that avoiding major market declines is the key to long-term investment 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 long-term impact. 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, 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 questionnaires will never give you the correct answers you need to be successful 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 the dips,” but they don’t, unless you’re one of their top clients. 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 earned 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 big enough to put money to work during a selloff in the markets, 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 the incompetence. You are paying mediocre interest on your valuable assets.
Not only are you not getting attention on your ENTIRE financial situation, you’re not even getting the courtesy of going the extra mile with your portfolio 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 advisor is buying bargain money for you!
This week was a real 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 fix. You should also make sure to keep some dry powder in case the market continues to drop.
The dips came and you had the opportunity to buy shares on offer. Did your financial advisor do that for you?
If it did, make sure you hang on to that advisor! If not, there are only two words that make any sense at this point:
YOU ARE FIRED!