The first three months of the year would not be described as boring by any stretch of the imagination.With the war in Ukraine continuing to create global uncertainty and the government-assisted closing of two of the largest regional banks in history, there is plenty to capture our short-term focus.But even with these and other events, many stock indexes are up since early January and bond prices have seen some recovery as interest rate pressure has eased a bit. The point is that sometimes investment returns can tell a different story than does the current headlines.
However, whether the numbers are up or down in any given year, we caution against letting them alter your mood, or as importantly, your portfolio mix. Because, when it comes to future expected returns, short term performance is among the least significant determinants available.
Thumbs Down…Thumbs Up
In the thumbs-down category, U.S. stock market indexes1 turned in annual lows not seen since 2008, with most of the heaviest big tech stocks2 taking a bath. Bonds fared no better, as the U.S. Federal Reserve raised rates to tamp down inflation. The U.K.’s economic policies3 resulted in Liz Truss becoming its shortest-tenured prime minister ever, while Russia’s invasion of Ukraine and China’s continued COVID woes kept the global economy in a tailspin. Cryptocurrency exchanges like FTX4… well, you know what happened there.
On the plus side, inflation has appeared to be easing slightly, and so far, a recession has yet to materialize. A globally diversified, value-tilted strategy5 has helped protect against some (certainly not all) of the worst returns. An 8.7% Cost-of-Living Adjustment (COLA)6 for Social Security recipients has helped ease some of the spending sting, as should some of the provisions within the newly enacted SECURE 2.0 Act of 2022.
Recency Bias
Now, how much of this did you see coming last January? Given the unique blend of social, political, and economic news that defined the year, it’s unlikely anything but blind luck could have led to accurate expectations at the outset.
In fact, even if you believe you knew we were in for trouble back then, it’s entirely possible you are altering reality, thanks to recency and hindsight bias. The Wall Street Journal’s Jason Zweig7 ran an experiment to demonstrate how our memories can deceive us like that. Last January, he asked readers to send in their market predictions for 2022. Then, toward year-end, he asked them to recall their predictions (without peeking). The conclusion: “[Respondents] remembered being much less bullish than they had been in real time.”
In other words, just after most markets had experienced a banner year of high returns in 2021, many people were predicting more of the same. Then, the reality of a demoralizing year rewrote their memories; they subconsciously overlaid their original optimism with today’s pessimism.
What have we learned?
Where does this leave us? Clearly, there are better ways to prepare for the future than being influenced by current market conditions, and how we’re feeling about them today. Instead, everything we cannot yet know will shape near-term market returns, while everything we’ve learned from decades of disciplined investing should shape our long-range investment plans.
In other words, stay informed but be careful to not be swayed into a reactive decision. Keep your long-term lenses on and your future self will thank you for it.
As we head into a new quarter, always know that we are here to help and are grateful for your continued trust.
Well, we made it to 2021 so how are you feeling? The start of a new year can breed hope for new possibilities. Even though 2020 was oppressive to most in so many ways, I do think we can still hold hope for the new year. I have never been one to focus on New Year’s resolutions as they always felt like a recipe for disappointment (I know that is not the case for everyone, though). What I am striving for this year is not new resolutions, but rather strengthening routines. Routines feel more in my control, and if 2020 taught anything, it is to control what we can control. One of these areas for me is to practice gratitude. I have begun by thinking of 3 things I am grateful for each night before I go to sleep. It is refreshing and encouraging to think on these things. When we talk later this year, feel free to check on my progress with this. This is just one small example, and I am sure that you have others that jump to your mind. Let me encourage you to pursue practices like this for the sake of your own mental health in 2021.
Speaking of control…
You likely have heard us say in the past that market performance is not an area that any of us have control. Because of this, it is wasted energy to focus and worry about market movements. You should spend that energy doing things you can control: spend less than what you make, avoid debt, build cash reserves, plan your generosity and plan your future – practical principals that have an outsized impact on your life.
Small, quiet acts
Whether the temptation is to abandon a free-falling market (like the one we encountered less than a year ago), or chase after winning streaks, an investor’s best move remains the same. Concentrated bets on hot hands generate erratic outcomes, which makes them far closer to being dicey gambles than sturdy investments. Trust instead in the durability of your carefully planned investment portfolio. Focus instead on small, quiet acts. That is what we are here for, for example, to:
– Remind you that your globally diversified portfolio already holds an appropriate allocation to Tesla stock (which may be a lot, a little, or none, depending on your financial goals.
– Guide you in rebalancing your portfolio if recent gains have overexposed it to market risks.
– Help you interpret the 5,600 pages of the newly passed Consolidated Appropriations Act, 2021, so you can manage your next financial moves accordingly.
– Assess potential ramifications of the Biden tax proposals and advise you on any additional defensive tax planning that may be warranted for you in the years ahead.
-Remain by your side as you encounter whatever other challenges and opportunities 2021 has in store for you and your family.
These are not loud acts that you will read about in the paper, but they are the stuff financial dreams are made of. 2021 will be interesting to say the least, but let’s hold onto the hope and possibility that a new year brings. Stay healthy, stay grateful and know that we are here to help.
Josh, Mike, Matt and Sandra
Most North Carolinian’s are working hard to take care of their families and help their neighbors in the current crisis. Nevertheless, criminals seek to exploit the Covid-19 pandemic to further their scams.
We received the notice below from the North Carolina Secretary of State warning residents to be wary, and we want to share it with you. If you or someone you care about comes across something questionable related to investing or charitable activities, please don’t hesitate to call. We can help you check it out. PLC Wealth is here to help you and answer any questions you have.
Take care, and thank you for your business with PLC Wealth.”
NC Secretary of State Offers Tips to Avoid COVID-19 Related Investment Scams
NC Secretary of State Elaine Marshall is cautioning investors that the ongoing Coronavirus pandemic will likely spark a surge of investment fraud.
“Sadly, scam artists will seek to exploit rising concerns about COVID-19 to draw people into investment traps,” warned Marshall. “Fraudsters often use the day’s headlines in their pitches, so expect to see them prey on the fear surrounding the unfolding Coronavirus pandemic and recent economic developments to promote sham investments.”
The North American Securities Administrators Association (NASAA), of which the NC Secretary of State’s Office is a member, is joining state regulators in offering tips to keep investors safe in these uncertain times.
Bad actors may develop schemes falsely purporting to raise capital for companies manufacturing surgical masks and gowns, producing ventilators, distributing small-molecule drugs and other preventative pharmaceuticals, or manufacturing vaccines and miracle cures.
Scammers also will seek to take advantage of concerns with the volatility in the securities markets to promote “safe” investments with “guaranteed returns” including investments tied to gold, silver and other commodities; oil and gas; and real estate. Investors also can expect to see schemes touting quickly earned guaranteed returns targeting seniors worried about economic disruptions and losses to their retirement portfolios.
“From guarantees of high returns without risk to promises of a miracle cures, if it sounds too good to be true, it probably is,” warned Secretary Marshall. “I urge North Carolinians to follow these tips to help protect your financial and physical health as you navigate these uncertain times.”
Investors are encouraged to call the NC Investor Hotline at (800) 688-4507 or email us at before signing over money in any investment opportunity. If you suspect an investment opportunity is fraudulent, you may report it at www.sosnc.gov. You can also find a wealth of investor education material at www.sosnc.gov/divisions/securities.
Schemes to Watch for:
Private placements and off-market securities. Scammers will take advantage of concerns with the regulated securities market to promote off-market private deals. These schemes pose a threat to retail investors because private securities transactions are not subject to review by federal or state regulators. Retail investors must continue to investigate before they invest in private offerings and independently verify the facts for themselves.
Gold, silver and other commodities. Scammers may also take advantage of the decline in the public securities markets by selling fraudulent investments in gold, silver and other commodities not tied to the stock market. These assets are often promoted as “safe” or “guaranteed” means of hedging against inflation and mitigating systematic risks. However, scammers may conceal hidden fees and mark-ups, and the illiquidity of the assets that may prevent retail investors from selling the assets for fair market value. There are no “can’t miss” opportunities.
Recovery schemes. Retail investors should be wary of buy-low sell-high recovery schemes. For example, scammers will begin promoting investments tied to oil and gas, encouraging investors to purchase working or direct interests now so they can recognize significant gains after the price of oil recovers. Scammers will also begin selling equity at a discount, promising the value of the investments will significantly increase when the markets strengthen. Never lose sight of the risks associated with any prediction of future performance and remember that market gains may not correlate with the profitability of their investments.
Get-rich-quick schemes. Scammers will capitalize on the increased unemployment rate with false promises of quick guaranteed returns that can be used to pay for rent, utilities or other living expenses.
Replacement and swap schemes. Investors should be wary of any unlicensed person encouraging them to liquidate their investments and use the proceeds to invest in more stable, more profitable products. Investors may pay considerable fees when liquidating investments, and the new products often fail to provide the promised stability or profitability. Advisors may need to be registered before promoting these transactions and legally required to disclose hidden fees, mark-ups and other costs.
Real estate schemes. Real estate investments may be appealing because the real estate market has been strong and low interest rates have increased demand. Scammers often promote these schemes as safe and secure, claiming real estate can be sold and the proceeds can be used to cover any losses. However, real estate investments present significant risks, and changes to the economy and the real estate market may negatively impact the performance of these products.
How to Protect Yourself:
The NC Secretary of State’s Securities Division offers this guidance to help investors avoid investment scams:
Ask before you invest. Investors in North Carolina should call the NC Investor Hotline at (800) 688-4507 or email us at to find out if the salesperson and the investment opportunity itself are properly registered. Investors also can check the SEC’s Investment Adviser Public Disclosure database and FINRA’s BrokerCheck. Avoid doing business with anyone who is not properly licensed. If you suspect fraud, please report it to us at www.sosnc.gov.
Don’t get hooked by a phishing scam. Phishing scams may be perpetrated by those claiming an association with the Centers for Disease Control and Prevention, the World Health Organization, or by individuals claiming to offer medical advice or services. Watch out for con artists offering “opportunities” in research and development. These scams may even be perpetrated by people impersonating government personnel, spoofing their email addresses and encouraging victims to click links or open malicious attachments. These emails may look real and sound good, but any unsolicited emails with attachments and web links may be directing you to dangerous websites and malicious attachments that can steal information from your computer, lock it up for ransom, or steal your identity. When in doubt, don’t click.
There are no miracle cures. Scientists and medical professionals have yet to discover a medical breakthrough or develop a vaccine or cure for COVID-19. Don’t fall for online pharmacies claiming to offer vaccines and don’t send money to anyone claiming they can prevent COVID-19, through a vaccine or other preventive medicine.
Avoid fraudulent charity schemes. White-collar criminals may pose as charities soliciting money for those affected by COVID-19. Fake charities will frequently use sound alike names that mimic established charities. Rather than clicking on the links or responding to the email addresses or phone numbers provided in a text, email or social media post, do an internet search to find the charity’s website and reach out to them directly. A link in an unsolicited email could send you to an impostor site. Give generously but wisely to make sure your help is going to those who need it.
Be wary of schemes tied to government assistance or economic relief.The federal government may send checks to the public as part of an economic stimulus effort. It will not, however, require the prepayment of fees, taxes on the income, the advance payment of a processing fee or any other type of charge. Anyone who demands prepayment will almost certainly steal your money. And don’t give out or verify any personal information. Government officials already have your information. No federal or state government agency will call you and ask for personal
Let’s be clear: We did not wish for, nor in any way cause a tumble in the markets, especially among tech stocks. That said, we could not have come up with a more telling illustration to underscore the perennial value of building – and maintaining – a globally diversified investment portfolio for achieving your greatest financial goals.
Global diversification is such a powerful antacid for when (not if!) we experience market turbulence, it’s why we’ve long recommended spreading your market risks:
According to your personal goals and risk tolerances
Between stock and bond markets
Among evidence-based sources of expected long-term returns
Around the world
In short, broad, global diversification never goes out of style.
Breaking news shows us why.
Just a few short days ago, third quarter market performance numbers were rolling in, and we were fielding questions about the wisdom of continuing to participate in worldwide stock and bond markets. Some globally diversified investors were beginning to question their resolve after comparing their year-to-date returns to the U.S. stock market’s seemingly interminable ability to whistle past the graveyards of disappointing, portfolio-dampening performance found elsewhere.
Some were asking: “Should we dump diversification, and head for the ‘obviously’ greener pastures watered by U.S. stocks?”
We aren’t the only ones advising investors against reacting to hot runs by turning a cold shoulder to their well-structured portfolio. In his timely September 28 column, Wall Street Journal personal finance columnist Jason Zweig commented: “Looking back in time from today, U.S. stocks seem to have dominated over the long run only because they have done so extraordinarily well over the past few years.”
As current conditions starkly show, there’s a reason for the expression, “Things can turn on a dime.” Whether it’s U.S. stocks, international bonds, emerging markets or any other sources of expected return, the evidence is clear: Trends rise and fall among them all. This we know. But precisely when, where, how much, and why is anybody’s guess. As Zweig suggests in his piece, “Markets tend to lose their dominance right around the time it seems most irresistible.”
What’s next?
We’re drafting this message to you Wednesday evening, October 10, in advance of what may be a wild ride for the next little while. By the time you’re reading this, prices may still be tumbling, or they may already have recovered their footing. We can’t say.
Come what may, we hope we can be particularly helpful to you at this time.
Have current conditions left you troubled, unsure of where you stand?
Let’s talk. We’ll explore whether you’re able to sit tight with your existing strategy, or whether we can help you think through any next steps you may be considering. Most of all, know you are not alone! We are here as your sounding board and fiduciary advisor. Your best interests remain our top priority.
Are you reflecting calmly on current events, recognizing that market volatility happens?
Allow us to applaud you for your stamina, and remind you: Current conditions likely represent a time for continued quietude, along with ongoing attention to managing your tailored portfolio.
Regardless of your temperament, we’d like to share a sentiment from Behavior Gap author Carl Richards’ 2015 New York Times column. His point remains as relevant as ever:
“On a scale of 1-10, with 10 being abject misery, I’m willing to bet your unhappiness with a diversified portfolio comes in at about a 5, maybe a 6. But your unhappiness if you guess wrong on your one and only investment for the year? That goes to 11.”
Let’s be in touch if we can answer any questions or scale down any angst you may be experiencing.
If you were a member of the popular press, you’d probably be happy with 2018’s first quarter performance. At last – some volatility fueling news1 in early February, with plenty of enticing “largest,” “fastest,” and “worst” market superlatives to savor after a long, languid lull.
As usual, there are plenty of potential culprits to point to among current events: global trade wars heating up, the arrival of quantitative tightening (rising interest rates), troubles in tech-land over data privacy concerns, ongoing Brexit talks, and some interesting events over in the Koreas. At quarter-end, one hopeful journalist asked, “Is the Bear Market Here Yet?”2 Another observed: “[T]he number of [Dow Jones Industrial Average] sessions with a 1% move so far in 2018 are more than double 2017’s tally, and it isn’t even April.”3
Has the coverage left you wondering about your investments? Most markets have been steaming ahead so well for so long, even a modest misstep may have you questioning whether you should “do something,” in case the ride gets rougher still.
If we’ve done our job of preparing clients and their portfolio for market jitters, clients may might be able to cite back to us why they’ve already done all they can do to manage the volatility, and why it’s ultimately expected to be good news for evidence-based investors anyway. Remember, if there were never any real market risk, you couldn’t expect extra returns for your risk tolerance.
That said, you may have forgotten – or never experienced – how awful the last round of extreme volatility felt during the Great Recession. Insights from behavioral finance tell us that our brain’s ingrained biases cause us to gloss over those painful times, and panic all over again when they recur, long before our rational resolve has time to kick in.
If you noticed the news, but you’re okay with where you’re at, that’s great. If the volatility is bothering you, talk to a CFP® professional or other qualified financial professional; it may help ease your angst. If you continue to struggle with whether you made the right decisions during quieter markets, plan a rational shift to better reflect your real risk tolerances and cash-flow requirements. Not only is your peace of mind at least as important as the dollars in your account, you could end up worse off if you’ve taken on more risk than you can bear in pursuit of higher expected returns.
As Wall Street Journal columnist Jason Zweig said during the February dip: “A happy few investors … may have long-term thinking built into them by nature. The rest of us have to cultivate it by nurture.” We couldn’t agree more, and we consider it our duty and privilege to advise you accordingly, through every market hiccup.
