Content provided by Grant Engelbart, CFA, CLS Portfolio Manager
My father recently asked me about an email he received promoting a “special newsletter.” You know the kind – “The Dow Will Plummet to 6,000! – subscribe now and save yourself!”
These type of doomsayers have always been around, except they become particularly loud at points like this in the market cycle. Just as these so-called experts begin to warn of impending doom, the rest of the public is ready to jump into the market, like my other friends and family who want to get in on this low-volatility-money-making-machine we call the stock market!
So, which side is right? Well, CLS would venture to say neither. It is inevitable that there will be another bear market someday (gasp!), but the timing of it is anyone’s guess. The fact that markets are cyclical, fuels both the bulls and the bears. So, what are you supposed to do amidst all of this uncertainty, emotion, euphoria, and fear?
I have two suggestions, and they aren’t what you might think. Day trade? Go to cash? A crazy, over-the-top stock options strategy? Nope, my suggestions are very simple: Get a financial advisor, and stay diversified.
A good financial advisor can help tame the emotions we all face when dealing with our money, and slow down the emotional roller coaster. We’ve all seen how trying to time the market or bailing out at the wrong time impacts investor-versus-market returns. Advisors help us continue to contribute and stay invested even when hope looks grim, which is probably the best time to invest! At CLS, we encourage the advisors we partner with to stay on top of their clients’ ability and willingness to take risk by reassessing their risk budget scores annually. This helps determine if they are both financially and emotionally ready to weather a full market cycle.
Second, stay diversified. We preach this constantly because we really mean it. Don’t listen to your friend brag about his five-star biotech fund that has rocketed over the past few years. Global, broad asset class diversification reduces volatility and drawdowns, which helps calm the nerves. (If you don’t believe me, check out the last couple pages of this recent weekly market review). The goal of a multi-asset portfolio is to prepare you for just about any market environment. And when investing for the long-term, you will encounter just about any market environment.
One of my favorite pieces of advice is a simple one: “Don’t predict, prepare.” Getting a financial advisor and building a broadly diversified portfolio that suits your risk tolerance is an awfully good way to prepare.