Three Keys to Surviving the Next Correction
As most of us discovered in South Carolina’s historic flood, it is best to prepare for extreme conditions when everything is calm. The same principle applies to how we think about our investments. It is good to become emotionally prepared for market price variability when all is well.
The S&P 500 Index has declined 10% or more 28 times since 1950; 20% or more nine times; and 30% or more five times during this period. The flip-side is that the S&P 500 was valued at about 17 on January 1, 1950, and is at about 2100 now. The intervening years have brought about all types of scares and random events but the upward trend has continued despite all of those headwinds. There are three keys to keeping your cool when markets turn south:
1. First, consider your entire adult life as your investing time horizon.
That is, if you are age 55 for example, your investment life might be another 40 years. Not everyone will live until age 95 or later, but a good percentage will. If you have a 40-year time horizon, you will likely live through many market pullbacks (see above). Nothing to see here.
2. Next, beware of your behavioral blind spots.
We all have them, even if we think we don’t. We sometimes refer to “the three B’s”—blind spots, biases and behavior. Emotions play a major role in all of our financial choices. In times of stress, herding, or following the crowd can be a costly bias. Feelings of fear, panic and remorse can lead you to make poor choices. Relax and remember you are running a marathon, not a sprint. The long- term trends work in your favor...if you don’t get in their way. With a hat-tip to football season, remember that you don’t have to react to the play-by-play commentary. In fact, you don't even have to listen.
3. Finally, focus on your “why", that is, your reason for investing.
Money means different things to everyone. Remember what you are trying to accomplish financially and why you have accepted the inevitable, if unpredictable, risk associated with investing.
Your financial life is not separate from other aspects of your life. Money plays a role in almost everything you do. Even small financial choices are real...treat them that way.
You stand a much better chance of surviving the next correction if your investments reflect your goals...your values. Is your strategy all set?
Advisors Will Be Extinct in 5 Years Unless…
I’ve had financial advisors for more than 40 years. Not once in those years have I called my advisor to find out what stock/funds I should buy or sell. But I have called to find out where I should get my first mortgage, when to sell my house, or how much income I could get in retirement.
In short -- and I think I’m pretty typical – I was looking for financial advice, as it relates to my life.
Here’s the disconnect, what most advisors do is simply manage their clients’ assets. They determine what to buy, and what to sell, they think about risk management, about growing their practice by finding new clients and about getting paid.
Historically that has been the business model. But as more women take control over financial assets, they, like me, will be looking for a different experience. And unless the financial community is willing to change ….. advisors, as they are today will be extinct in five years.
Advisors who want to survive will have to do a lot more than just manage money – they will have to provide genuine “advice”. That means doing what’s right for the client, not pushing product and pretending it’s advice.
Women especially, but all investors generally, are becoming more and more cynical. They says, “If I want advice about reducing my debt, that’s what I want and not ‘here’s more debt’ because that’s what my advisor gets paid for! And if saving taxes is what I want then saving taxes should take precedent over selling me a product.”
You may be thinking that spending your time providing advice isn’t lucrative but the reality is that in the long run – it pays off in spades. The advisors who take the time to build real relationships with clients, who provide advice as it relates to their clients’ lives, even when there is no immediate financial benefit to themselves, those who don’t simply push product – are the ones who over time have the most successful practices.
Generally women understand and value service, but they will say, “If I’m paying, I want to know what I’m paying for: Is it for returns? Is it for advice? Is it for administration? I want to know. Then I can make up my mind what’s worth it and what isn’t.”
Investing is becoming a commoditized business and technology is replacing research that no one else can find. Today the average advisor is hard pressed to consistently beat the markets, and with women emerging as the client of the future, unless they start providing real advice, their jobs will likely be extinct in five years.
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