Tag Archives: investors

On Recent Market Volatility. An Open Letter to Our Clients.

And you thought we saw volatility last Thursday and Friday?…

It is normal to for you to wonder how all of this volatility affects your wealth.  As we are hearing it, China seems to be the straw that broke the camel’s market’s back.  Other forces added to the weight, including uncertainty over the timing of the Fed raising interest rates and the Greek debacle.  However, we do not think that any of these things are cause for long-term concern regarding your portfolios.  If you are feeling some stress because of the recent market volatility, remember:

Stock markets are supposed to go up and down

There have been over a dozen market pullbacks of at least 5% since March 2009, so this isn’t unprecedented.  We all realize that stocks are inherently volatile investments, and we must accept the fact in order to earn the expected higher long-term returns.  You have all undoubtedly heard us preach asset allocation and the importance of having a long-term, strategic view.  Your portfolio is invested in a model based on your unique financial and personal circumstances.  It is important to take the long view and realize that it is typical for bull markets to have corrections of 5% – 10%.

Market timing is a sucker’s game

None of us has a crystal ball.  Not even the traders and speculators on TV that want you to think that they do.  Luckily, you do not need a crystal ball to be a successful investor.  In times like these, it is best to keep your cool and stay invested.  Studies consistently show that missing just a few days of strong returns can affect your performance dramatically.  It is important to stay disciplined and not make short-term trading decisions based on fear and emotion.

Your portfolios are properly diversified

This is our most important point.  As we mentioned, we have invested your money in an appropriate allocation for you, so those investments that have not done as well as the stock indices the past couple of years (looking at you, bonds) should help cushion the blow from this market correction.  That is exactly why they are in there.  Having a mix of different types of investments is like having shocks and struts on your car – these things provide a smoother and more stable ride for your portfolio.  When the stock markets are going great, these other investments do cause drag, but we do not invest to beat an arbitrary benchmark, rather we invest to help you achieve your financial goals with the least amount of risk possible.

The things that are causing this correction are just noise

China is slowing.  So what?  To say that their growth rate is slowing is admitting that they are still growing, just at a slower pace.  Did anyone really expect them to grow at 20% per year forever?  Moreover, if you look at it from a numbers perspective, exports to China only account for 0.7% of U.S. GDP.

The Yuan is falling.  Just a few months ago weren’t the talking heads lamenting the thought of the Chinese yuan as the world’s new reserve currency?  Now that talking heads who brought you that idea are being proven wrong, they want you to believe that this is supposed to be bad, too?  Which is it that we are supposed to fear again?  We wrote a blog piece about this last week, so we won’t go into great detail rehashing it here, but our general reaction is, again: So what?

The Fed is going to raise interest rates. (Eventually.)  It was not that long ago that tapering was supposed to bring financial ruin to us all…  Look, we all know that the Fed is eventually going to raise rates.  We can argue about the timing, but whenever it finally happens and the federal funds rate increases by 0.25%, does anyone really think that will keep Apple from introducing the latest re-iteration of their products?  Or keep anyone from buying them?

We realize that we have been having some fun with things that may cause some of you serious concern.  What we do not take lightly as your advisors and financial fiduciaries is the amount of concern and care we place on your financial well-being.  In times like these, it is important to stay calm and avoid making hasty decisions that could harm you financially.  We will continue to monitor your portfolios with vigilance, and as always, please do not hesitate to contact us if you have any questions or concerns.

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The Trend: Fewer “Self-Directed” and More “Advisor-Reliant” Investors

According to Cerulli Associates more households rely on advisors than ever before.

Since 2010, the households classified as “self-directed” investors had shrunk from 45% to 33%, while households termed by Cerulli as “advisor-reliant” investors — regularly consulting with an advisor — had grown from 34% to 43%.  What drives this trend?

I can think of several reasons.  Two that come readily to mind are:

  • the increasing complexity of financial markets and
  • the number of dramatic financial shocks that people have experienced in the last 15 years.

I can remember a time, back in the 20th Century, when “investing” meant calling a well-know investment firm and buying a stock, like General Motors.  Well, good old GM went bankrupt a few years ago and since then about 25,000 mutual funds have appeared.  In addition there are options, derivatives, structured products, and – of course – ETFs (exchange traded funds).  And that’s just here in the good old USA.  But there’s a whole world out there that people can invest in: foreign stocks, foreign funds, world stock funds, emerging markets, commodities, to say nothing of foreign bonds and currencies.

Few people have the time to study all of these, so the rational thing to do is to find a financial advisor to help you make sense of it.

And then there are the financial disasters that decimated many self-direct portfolios.  In the year 2000 the dot-com bubble collapsed, devastating the portfolios of those riding the tech boom.  And who can forget the housing bubble that led to the financial crash of 2008, wiping out some of the major banks and investment firms and ending the dreams of a comfortable retirement for many people?  Professional advice should be concerned with risk control as their first objective, followed by getting a fair rate of return on your invested assets.

During all this time, financial advisors who were once employees of the major investment firms decided that they could best serve their clients by declaring their independence.  They set up their own firms, becoming Registered Investment Advisors (RIAs) offering fiduciary services.  That is another development that has helped to make financial advice more accessible to individuals and families, the mom and pops of the investment world.

If you’re one of the shrinking do-it-yourself crowd, check us out and see why you may be much more comfortable with us as your advisor.  And if you are one of those with an advisor but wonder if you could do better, feel free to get a second opinion.  We’re a family firm.  We deal with several generations of families that look to us for guidance.  We look forward to hearing from you.

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What do younger investors want?

Schwab did a study about affluent investors aged 30 – 45.  The study wanted to determine what matters to this group, how they make decisions and their attitude toward investing.  That age group controls nearly $3.5 trillion in investable assets.  Schwab is interested because they are the top custodian for independent Registered Investment Advisors (RIAs) like Korving & Company and believe that RIAs are best able to service this group.

So what do these investors have in common?

  • The study revealed that they are anxious and insecure about the future because they have already experienced a couple of major economic crises, domestic terrorism, unemployment and several financial bubbles.
  • They don’t trust the industry, believing that they recite corporate talking points and don’t really care about them.
  • They are short-term focused and like to keep large amounts of cash as a safety net they can trust.
  • Success for them is “having the freedom to avoid hardship and to not be a burden to others.”

I should add that people in this age group are less likely to work for a company that offers a pension, making them more dependent on themselves for retirement.  Except for that, in many respects, this generation is not very different from preceding ones, except that they are more apt to rely on digital communication and the Internet, having grown up with computers.  Many in this group cannot differentiate between types of financial advisors, and do not understand the difference between the independent RIAs and the brokers that work for the “big box” stores.

Schwab’s conclusion:

“Our findings reveal that Generation Now investors want a trusted guide with expert knowledge who deeply understands them and their unique needs.  We believe independent advisors fit that need, but this generation just doesn’t know it yet.”

“Their ideal financial advisor relationship is with one whom they can build a trusted and transparent relationship, based on empathy and understanding of the whole person, not just their financial goals,” Schwab says.

“They want their advisor to provide planning and financial advice alongside expert advice in other related areas, such as tax or insurance.  Generation Now also expects to be heavily involved in decisions regarding their investment strategy.

“Advisor accessibility is important to this group.  They want to be able to communicate with advisors whenever, wherever, through a combination of in-person meetings as well as voice, text, e-mail and videoconferencing.”

It sounds as if this generation is looking for firms like ours.  Check out our new website.


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