“Client Headlines NOT News Headlines”

We recently met with a fund manager who has over 25 years’ experience in the industry and we asked him what his outlook was for 2020.  He proceeded to rattle off a number of global factors that could impact markets and the economy such as trade wars with China, Brexit fall-out, negative interest rate environments in Europe and Japan, US Presidential elections, Coronavirus effects on China’s GDP, Middle Eastern conflict, and North Korea resurfacing just to name a few.  Wow, ok let’s take a deep breath.  We’ve heard about all these issues but when they get listed out in a string of potential threats to the global economy it’s easy to become overwhelmed and take a defensive posture. However, after stating all these things he proceeded to state that equity markets are still projecting growth, and that his own investment style won’t change because his personal goals haven’t changed.  Interesting that despite the volatile news headlines he didn’t plan on changing much about his investment philosophy.  This tension between news headlines and client headlines (goals) is what we will explore in this post. What are you Consuming? When we constantly watch news headlines it’s very easy to get caught up in them and assume that we are certainly headed towards WWIII.  Most of the financial, political, and economic news of the day tilts toward the negative because that is what attracts people’s attention.  Many investors (both professional and non-professional) get shaken up by this news and in extreme cases make the decision to move portions or all their investments from stocks to bonds or cash.   What and who we surround ourselves with leads to the thoughts we give credibility to and the actions we take.  This isn’t to say we should assume everything will always be rainbows and sunshine, but it’s so important to see the news headlines of the day through the lens of our personal circumstances and goals. Have your Personal Goals Changed? As we hear all of the news headlines, we should ask ourselves this question: “Have our personal goals changed?” (Check out our post on setting goals based on your values) In our experience, the client’s personal circumstances and headlines should carry more weight than the latest news headline.  For example, if we had let our clients change their investment allocation from stocks to bonds or cash back in 2008 when every news headline said the world was collapsing where would they be today? Should someone who was near retirement back in 2008 already have had a well-diversified and properly allocated portfolio that didn’t have aggressive stock allocation?  Yes, and that is precisely our point.  Investment decisions should be guided by the client’s individual circumstances (their headlines) and if those circumstances and goals haven’t changed then usually the best course of action is to do nothing. When the Urge to Change is Strongest… When the urge to make a change is the strongest, often the benefit of change is the weakest.   This has been our opinion for some time, but recent research from the Federal Reserve of St. Louis shows that heeding doomsday predictions over the past 10 years resulted in returns ranging from -25% to -60% (yes that is a negative sign)!   The history of the U.S. stock market favors eternal optimists, but this isn’t to say we should close our eyes and never make changes.  If personal headlines (circumstances or goals) do change or longer-term trends develop across industries and sectors, then make calculated adjustments makes sense.  Just make sure the change is based on circumstance and not emotion. The fears and concern are absolutely warranted, and we never want our clients to feel they can’t express their thoughts or ultimately have the complete control over how their money is invested.  We simply want to be here as a sounding board and provide guidance and expertise based on long-term views and experience.

January 31st, 2020