A well-known investment market commentator recently quipped about the recent market pullback: “The market is the lowest it has been since June 2018.” When we put the recent pullback in that short run context, it may give us some additional worthy perspective so we don’t make too much about the day to day
market ups and downs and stick to our long term strategy.
But when we think about market moves, for most of us, it’s always the short run moves that frighten us, that threaten to shake us out of our long term investment strategies. But even for those investors looking at retirement only a few years away or even shorter, the reality is that their investment time horizon in retirement may still be 20 to 30 years long. That’s a long time and reemphasizes that establishing the right long term game plan is key to meeting our financial goals.
It’s why we at TruNorth Capital also put a big emphasis on the regular use of some new technology measurements to help us assess client risk tolerance so that we can better design portfolios around every client’s individual ability to “sleep at night” and manage the short term fluctuations that are an unavoidable, inherent part of being an investor. In fact, that’s why we get higher returns by investing in stocks because we are compensated over the long run for that short term market movement, which isn’t fun to live thru, but it’s those moves that help us increase our expected returns.
We (nor does anyone else despite what they may say) don’t have a crystal ball to let anyone know where stock, bond, real estate and other hard asset markets end up in the short run. Warren Buffett said in 2016 during a period of market volatility: “Don’t watch the market closely. If (you) are going to buy and sell stocks and worry when they go down a little bit….and then maybe sell them when they go up, they are not going to have very good results.” But while it’s smart to not get too concerned about the day to day market moves, it’s critical over time that portfolio rebalancing occurs to make the portfolio designed for your specific goals isn’t taking too much or too little risk so that thru market ups and downs, you are well positioned to be maximizing your expected return.
As we look into Q4 with recent market volatility in mind, we are actively rebalancing client portfolios to realign with each client’s personal goals and objectives. We are also updating risk profiles by use of our online tools assessments, and we are also are engaging in tax loss harvesting in taxable client portfolios, which helps to reduce tax liability by selling an investment in order to create a taxable loss, and reinvesting the sale proceeds to help increase overall returns.
What’s been troubling the markets in October? Probably quite a few things of late. Higher interest rates driven by Fed induced interest rates increases have caused a short term flip in bonds and falling bond prices, which we haven’t seen in years with the ten year Treasury bond now at multi-year highs around 3.2%, which are levels we haven’t seen since times of the Great Recession in the 2009 to 2011 period. The ongoing trade wars, notably with China, are also probably causing some market angst despite the completion of a new trade deal between the US, Canada and Mexico.
The market is also a forward-forecasting mechanism, and the best market returns tend to come when economic data is not at its peak. Today it’s hard to argue we aren’t seeing the best economy we’ve seen perhaps in decades. We currently are seeing the opposite of weak economic performance, in fact, jobless rates are at the lowest level since 1969 and the US economy was just rated the world’s most competitive economy, a feat which the US hasn’t won in almost a decade. Corporate earnings can also be a driver of stocks on a forward-looking basis, and the market may be signaling some likely slowdown in earnings from today’s peak levels as it’s difficult for year-over-year corporate earnings to exceed the prior year.
What’s the smart strategy for investors to follow? Given all the market uncertainty, investors must remain disciplined and diversified, aligning their strategies with the retirement plan and risk tolerance. Now is a good a time as any to meet with us, and revisit your particular goals and dreams to make sure that your money is working in the right way for you. Investing done well isn’t about market-timing, or stock picking or other strategies that may be more exciting, but that enthusiasm should fade when they likely leave you with less money. The data doesn’t support short term tactics to help you increase returns. Much of what drives better investor returns are low costs; using market-based funds like index and other low cost funds to remain broadly globally diversified, and staying disciplined in buy and hold investing. We pride ourselves on helping our clients pursue the right investment strategies first with planning, then executing a game plan to save our clients be smarter about making money in the markets and saving our clients significantly on fees and other costs so that more of their money is always working for them.