Market Volatility: The Perfect Answer For "It's Time Do to Something"
True story: I had a friend who was such an abysmal investor he actually started investing against his own judgment. He’d plow through masses of data, read every piece of expert investment advice he could get his hands on, and make his picks. If his research and intuition told him to sell energy stocks, he’d invest a bundle in the sector. When he thought he was looking at a stock that was a “sure thing,” he’d sell. It was a bit crazy, but it paid off. Why? Because the one thing he knew for certain is that what he had been doing before wasn’t working, so he did the exact opposite, and his portfolio surged.
Just do something different
At the moment, it seems more than a few people are wondering if the Fed should think about using a similar tactic. Interest rates have been at historic lows ever since 2008 when rates plummeted to zero in an effort to salvage the tanking economy. And while a lot has changed in the US economy, the Fed has stuck by its old policy that rates shouldn’t be raised until core inflation hits the magical number of 2%.
But after a single rate hike in late 2015, Janet Yellen et al decided to sit tight. Again. This time the reason was Brexit, but it seems like there’s always something threatening the US economy. Brexit. China. War. And with a constant barrage of global events, it seems unlikely the US will exceed the 2% core inflation point any time soon—much less remain consistently above it.
Don’t get me wrong. I don’t presume to have all the answers. I’ve heard smart people on both sides of the fence argue for and against a rate hike, and both camps have very valid points. There’s no easy answer. So maybe the Fed should, like my friend, throw caution to the wind and just do something different. Just for the heck of it. Just maybe.
Then again, maybe they should look before they leap.
Setting Guideposts Creates Confidence for Advisors and their Clients
Here’s the thing: in today’s volatile environment, it’s easy to get caught up in the frenzy. There’s too much news. Too much information. Too much input to make smart, sensible decisions. For advisors, it begs the question: how do you manage your portfolios in the midst of unprecedented volatility? How do you manage the unmanageable?
The best-selling trading book of all time, Trading for a Living by Alexander Elder is a great place to start. (The updated version, The New Trading for a Living, was released in 2014.) Of course, there are many methods out there, but all of them are designed to help advisors and investors develop a disciplined approach to investing that removes the psychological and mechanical barriers to success.
As we all know, one of the biggest of those barriers is reacting to the market. You’ve seen it with clients: as soon as the market dips, the phones start ringing with clients wanting to jump ship—right at the worst time to sell. When the market peaks, everyone wants to jump on board—right at the worst time to buy.
It’s an easy cycle to spot when someone else is making the blunder. But unless you’re following specific guidelines and have created your own guideposts that drive not only buy/sell decisions, but the myriad other decisions you have to make on a daily basis, how can you be certain you’re not blundering yourself? Trading for a Living is a great read for anyone who wants to develop a calm, disciplined approach to the markets because it focuses on managing risk and managing your own responses to market volatility and other events, and it provides clear pathways for both.
Perhaps the most valuable outcome of having unshakeable guideposts in place is not confidence in your own decisions (which is wonderful in itself!), but the confidence of your clients.
The next time a client comes to you saying that “it’s time to do something,” you can remind them you already did do something. You jointly agreed to a strategy and guideposts that you’ll use to grow their wealth over the long run. You balanced their tolerance for risk and reward. And now they need to trust those decisions will pay off.
Even if Janet Yellen trusted my advice about the best next step for interest rates, I don’t know what I’d recommend. Perhaps trying something new is the right move. Perhaps it would be an economic disaster. What I do know is that creating and following concrete guideposts is the best possible way to manage uncertainty.
Most Read IRIS Articles of the Week: April 17-21
Here’s a look at the Top 11 Most Viewed Articles of the Week on IRIS.xyz, April 17-21, 2017
Click the headline to read the full article. Enjoy!
Like so many others in the industry, I was wrong. For years, I was certain that the bull market was nearing its end. I thought the market was over-extended, and that, surely, the wild equities run was coming to an end. But everyone else was bullish, and perhaps rightfully so. And while I’ve watched equities continue on their spectacular rise, I do think now is the time (really!) to put a hedge in place. Here’s why. Here’s how. — Adam Patti
The realities for fixed income investors have changed. How is this being reflected in markets? Bond investing has become increasingly difficult over the past decade. Markets have been heavily distorted by ultra-low interest rates and quantitative easing, as well as by extreme risk aversion in response to the global economic crisis and the eurozone debt crisis. — Nick Gartside
Is being a financial advisor worth it? I am an optimistic person and I encourage other people to keep a positive mental attitude (shout-out to Napoleon Hill and W. Clement Stone). However, by taking a good, hard look at the negatives in life, we can successfully pivot towards the positive aspects that will help us achieve our goals. — James Pollard
How do you treat one of your most valued, existing clients? Here’s a list of some things that come to mind. — Andrew Sobel
According to many advisors I speak with, the only clients that leave are those who have died. And while attrition may not be a big problem in this industry, I have to assume that at least a few clients change advisors without doing so via the funeral home. — Julie Littlechild
I was talking with an advisor last week about how to get into conversations about what he does. He was relaying the story of going jogging with a friend who could be a good client but is, more importantly, connected to a large network of people who fit this advisors ideal client description. — Stephen Wershing
Big picture thinkers are not unicorns - rare and mystical. And they were not born with the innate ability to think big. They do, however, pay attention to the broader landscape and take the time to think, analyze and evaluate. — Jill Houtman and Danny Domenighini
Your reputation is who you are and how you show up, Monday to Monday®. Many of us take our image and reputation for granted. Give careful thought to the kind of reputation that you would be proud of Monday to Monday® and that would resonate with your purpose and priorities. — Stacey Hanke
The generational changing of the guard is a fact of life as old as time. Young replaces old in responsibility, importance, control and culture. Outside of the family, the workplace is perhaps where this is seen most regularly by most people. — Shirley Engelmeier
Next time you hear your prospects give you price objections, it’s not because of the price. The give price objections because they don’t know the full value proposition that they’d be paying for. And it’s not based on their need, or your features and functions. It’s based on the buying criteria they want to meet internally. — Sofia Carter
Last week we wrote about the economic rationale behind going independent vs. moving to another major firm as an employee. As a follow-up topic, we thought it prudent to analyze transition packages attached to big firm moves and peel back the layers of the onion to show the components of these deals. — Louis Diamond
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