See It and Know

I know many have heard my comparisons, namely get in the car (invest) step on the gas (take more risk) slow down (take less risk). The process is incumbent upon the same influences as a drive on a highway, such as plenty of sunshine giving way to bad weather. But the key to this approach is twofold, don’t get out of the car and don’t let your mood let you think you see bad weather on the horizon. See it and know, as history has frequently reminded us most storms are usually far enough away to predict, and signals whether or not to actively slow down.  

So now that the markets have rebounded from last week’s volatile swings in addition to the nearly 10% correction of all of the broad indexes can we expect an orderly dialog from the industry experts. Not really, and that’s mostly because the difference between those who actually mange money and those who simply talk about it is perspective. Rather than drool when markets rally, as what goes up must come down, patience is a better tool. But human nature is unfortunately wired to pursue the opposite. Take for example the inclination to chase after a rally out of fear for missing it. The challenge is made harder from correction as we’ve just experienced because knowing when to become cynical about a recovery in stocks could come later as easily as sooner. In my opinion, there are reasons to consider it could come later.

Consider the economy. As mentioned recently the presence of inflation is a call to caution, but caution is a constructive tool in keeping enough investors on the sidelines to tip market supply and demand to favor demand. There is also the tax season that for now until at least April 15 will bring a substantial amount of earmarked cash into the market. Consider the Fed open to any continued evidence of economic heat is unlikely to refrain from raising rates at their next meeting, and an interest rate hike could moderate some concerns regarding inflation.

Also consider the current tone of broad markets. As volatility has remained more indecisive than unruly many of the technical indicators that read momentum and trend distribution made a compelling argument for buying on the recent dip. Those indicators are still friendly and the markets are clear in telling us not to chase them. Additionally it’s important that the sudden increase in volatility and interest rates suggest adaptable strategies for moving ahead, in particular looking at investments that are less sensitive to volatility and some to benefit from specifically stronger sector growth.

As a final note, in the middle of market rallies I’m often asked if it’s a good time to invest. My common answer is that it’s really more a good time to already be invested. I still think so now, but keep in mind, the balance between comfort and expectation is always present but was highlighted during the recent declines. In short, there is never a bad time to consider getting comfortable. 

A Folly of Financial Planning

First, two points. One, I value the importance of sound financial planning advice that all clients of financial practitioners should receive. Two, I am not a financial planner.

However, the latter underscores my often stated premise that when it comes to tax planning, insurance planning and estate planning I have found in my career that recognized professionals in these  fields are the best resource I have in my business outside, of course, my own skills as an investment planner. The reason is simple, the cacophony of simplistic phrases running from reaching your goals to comprehensive holistic advice (sounds like something from Star Trek), are the rallying cries of a generalist.

Now, to be fair, there are certainly many knowledgeable and experienced generalists who bring much to the discussion of a client’s planning needs. But our industry, who have begun to disproportionately cherish education over experience in a manner that ignores the successes of the past achieved by folks with far less than is respected in today’s intellectual sandbox. I bring this up because every time a politician or and besieged corporate head gives a public address there is usually a scholar nearby to lend credibility to the point. And nowhere is this tactic more widely used than in the world of finance. From the days when Wall Street was undermined by the so called “Quants”, highly educated mathematicians fresh from their academic gigs promising that their algorithmic (yes it’s use predates the 21st century) models will provide answers to many of our industry’s most vexing questions including when to buy and when to sell based on patterns of human behavior. History has recorded how that experiment worked out.

It’s also important to understand that investment planning is not enough and I know it. And the recent exercise of filling out the risk tolerance questionnaire, along with talking with you is to better understand your financial expectations, that through budget guidance and using modest assumptions when attempting to predict the future, what I refer to as overstating the debits and understating the credits, results in retirement projections and a plan for how investing can get you there. That, I believe is the cornerstone of comprehensive financial planning that doesn’t match products to dreams. And when including insurance, tax planning and attorney provided estate planning the likelihood is that most of my clients will never need all of those services.

And each quarter, each year, we revisit important milestones in your life, all aimed at helping you see where you stand and identify any changes that can to be made going forward. The process for staying on track needs to be flexible and ready for the unexpected, because the markets and especially life, rarely are.