Our Take on the Economy, the Markets & Volatility

Back in October of 2016, in the midst of a very turbulent period for investors, we circulated the piece below.  At that time, these were some of the prevailing headlines that contributed to market pessimism:

“There’s a Lack of Leadership Around the World”

“A New Cold War (Between the US and Russia) Has Begun”

“Deflation is a Possibility in Europe”

“The Ebola Virus Threatens to Spread”

“Growth in China is Slowing”

“ISIS is on the Move”

“Gas Prices Are Falling”

“Stocks Are Overvalued”

“Bonds Are Risky Due to The Threat of Rising Rates”

At the time, the Dow Jones Industrial Average was valued at a little over 18,000.  Just a few days later, we inaugurated the 45thPresident of the United States, and stock prices began a rapid ascent that continued until earlier this year.  In recent weeks, other headlines (and tweets) about a trade war with China, the Federal Reserve raising rates, slowing global growth, the strong US dollar, a looming recession, shifting congressional power, Brexit, natural disasters, raging wildfires, mass shootings, shifting immigration policy, extremism on both ends of the political spectrum, ongoing conflict in the Middle East, etc. have proven equally ominous.  Stocks have been hit hard, and yet here we are with the Dow well north of 23,000.

Those who ignore the lessons of history are doomed to repeat them.  With that in mind, please have a look below at what we wrote two years ago. ..

We certainly don’t dismiss the very real dangers that war, disease, and the like present to mankind, and we can’t deny that these concerns have had a sudden and dramatic impact on the prices of stocks and bonds both here and abroad, but when it comes to investing your wealth for the long-term, we think it’s helpful to remember there is rarely ever a time when there are no apparent risks, and it is precisely at times like this when those with the wisdom and courage to look beyond today’s negative news can act – or not – and thereby have a profoundly positive impact on their fortunes.

So what do any or all of these headlines mean for you and your portfolio?  Well, they’ve quite likely caused the value of your portfolio to decline.  This is never welcome news, and yet, the risk of loss is, in part, what makes possible the potential for returns.  In order to achieve higher returns, we have to expose ourselves to market volatility.  The question, of course, is how much, and the answer is, it depends.

If you’ve worked with us for any length of time, you know we build portfolios based on your financial objectives, your ability to withstand the risk of loss, and your investment time horizon.  We then manage those portfolios in a tax-sensitive manner, harvesting losses to offset gains, using asset location to maximize after-tax returns, etc., in an effort to help you keep more of your hard-earned money.

“Managing” a portfolio does not mean setting an allocation, making the investments, and then forgetting about it.  It involves ongoing monitoring and maintenance: trimming positions when they’ve grown too large, investing additional dollars in those that have declined in value, changing investments if circumstances call for it, raising cash for living expenses or putting available cash to work, etc.  It does not, however, mean trying to “time the markets” (i.e., predict when prices are about to go up or down and act accordingly).  We simply don’t believe that can be done with any degree of success over a sustained period of time, and we caution you to be skeptical about anyone who tells you differently. 

Stock prices could certainly fall farther from here.  We don’t know when that will stop, but if history is any guide, it eventually will.  In the past, stock market “corrections” (typically defined as a decline of 10% or more from a market high) can be helpful in sustaining an otherwise healthy bull market.  The current bull market began in March of 2009, so as difficult as it might be to endure this present bout of volatility, it might prove to be just what the doctor ordered.

Setting aside for a moment the decline in the value of your portfolio, have any of your personal financial circumstances changed recently? Has your time horizon shortened for some reason?  Maybe you need cash for a large purchase or gift or tax bill, or perhaps your income stream is drying up as a result of retirement, the expiration of a lease, or a change in your employment status.  Have your goals changed?  Maybe a change in circumstances has caused you to rethink what it is you hope to achieve. Have you lost your appetite for risk? If you’re unable to sleep at night because of what you’re hearing on CNN or CNBC, or if you believe the investment approach you’ve been following is no longer appropriate for you, please don’t hesitate to give us a call.

Between the Head & the Heart

We have also released our latest podcast episode on the markets where Michael Tucci, CEO & Co-Founder of Lexington Wealth Management, and David Morton, Chief Market Strategist for Rocaton Investment Advisors, discuss with Jordi Mullor, Director of Marketing & Business Operations at Lexington Wealth Management, about their take on the current state of our economy, the international markets and the recent volatility. Take a listen here:

Apple Podcast

Listen to the latest episode here:

Not an Apple user? No worries, listen to it here:

PodBean: Episode 3 – The “Market Series” – How do we feel about the economy?



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