It’s been almost two years since “patient zero” was officially diagnosed in the United States, and times have been trying, to put it mildly.
While the virus was wandering in China, even before it hit our shores, the market and the economy jittered around. A combination of the quickest 30% drop in stock market history, government-imposed closures of world commerce, and governments setting their money-printing presses on overdrive, has created a volatile backdrop for the financial system.
What will the stock market do next? Will high inflation endure? Will the unemployment level ever come back to pre-Covid levels?
These are some of the many questions we’ve fielded on a regular basis. Our clients, friends and other concerned investors turn to us as licensed advisors and we’ve responded by sharing potent and valuable communications to address these concerns.
We have always tried to remain even-keeled and level-headed, not getting overly bearish on the bad days or overly excited on the good ones. It wasn’t always easy. For about a year, good advice simply wasn’t working. People who were new to investing were quitting their jobs and making lots of money trading. Margin balances in accounts were up and the put-all-my-eggs-in-one-basket method was working out. Throughout those difficult times, we tried to keep our cool and advise others to stick with the models that have been working for many decades.
These days, though we aren’t ready to do a victory lap just yet, we will allow ourselves the proverbial pat on the back. While many rowdy traders got blown out of the water, our traditionalist, long-term approach has held up and worked to our clients’ advantage. The YOLO trade which had people betting it all on one stock or option, eventually came to a crashing halt, leaving many of those high-flyers down more than 80%. To get an idea about how our judicious approach played out over the course of the last few tumultuous years, here are some excerpts from our past articles:
“Investing in the market is for the long-term, not on each day’s news. If you are a net-buyer, cheer! You have an opportunity to buy these investments at a much better price.” (03-09-2020)
“As we write this, the Dow is -29% off its highs. Odds of better returns should follow. That doesn’t mean we won’t go down another 20% or need to endure nasty volatility. But that is a feature of the market, not a bug. In order to take part in the market returns, you need to sign up for the volatility.” (04-03-2020)
“Panic buying is a recipe for regret. Mean reversion is a powerful force. So, what is the proper strategy? You’ve got to have a plan and stick to it. That means having an emergency fund, investment plan and retirement plan in place.” (06-11-2020)
“Again, we don’t predict. But we do need to prepare. And how do we do that? Well, first and foremost, we want to have an all-weather portfolio. That is, a properly diversified portfolio where you have a mix of asset classes and proper asset allocation.
At Equinum, we have made some changes to our clients’ accounts. We have swapped some of the government bonds in our portfolios to TIPS, which are inflation protected. So, if inflation gets out of control, clients won’t lose purchasing power. We added some real assets to portfolios, like precious metals and real estate. These tend to do well in cases of inflation. Income producing companies can also be a good hedge as well. One more thing to the renters out there: It might be a prudent idea to consider purchasing a home. If we do have a pickup in real inflation, your rent can double over the next decade or so. But if you lock in a mortgage, your price is locked. To sweeten the deal, mortgage rates are the lowest ever recorded by Freddie Mac in a series that goes back to 1971.” (10-13-2020)
“We’re not saying that investors shouldn’t trade the market at all. We’re just saying that you need to understand what the market risks are. While you may have a friend who’s really good at the game now, if history serves as any guide, we can assume that the nature of today’s game is temporary. Leaving a steady income to get involved in speculation is a risky (read: bad) idea. If you want to take a small portion of your invested assets and speculate, it may well be worthwhile. But the bulk of your assets should be properly invested with a long-term approach in a well-diversified portfolio.” (03-22-2021)
“We all know that substantial investment risks will always be present in a portfolio. Some risks just can’t be removed. And if you follow markets, you understand that there is always a reason to sell, because the market is either at or near an all‐time high, or in a drawdown. Many will maintain that, when we’re at all-time highs, the market is extended and it’s time to opt out. And when we are in a drawdown, there is usually a reason for it. Which means that many are calling for markets to unravel.
What we to do for our clients may not always look exciting, but it helps them reach their goals. Discussing asset allocation, inflation hedges, insurance levels or estate planning will not excite most people. But when we focus on our clients’ total picture and keep them calm, we are creating legacies.” (07-30-2021)
It wasn’t easy begging people not to panic-sell during the drop, or to convince people not to panic-buy during the crazy rise. Advising on inflation hedges, well before it was covered on the nightly news, was no picnic – like when we advised clients to purchase a house (Brooklynites and Lakewooders out there). Throughout this turbulent time, we stood firm in our approach, despite the fact that the markets were going against our advice. Ultimately, remaining calm and positive, and sticking with the core principles of investing, usually works out for the best.
