“Stay the course.”
That was the advice from both Fidelity Investments Senior Advisor Jennifer Uhrig and The Colony Group Vice-Chair and Principal Bob Globsky on how financial advisors and their clients should deal with the constant ebbs and flows of the market.
Speaking at the 2019 eMoney Summit, a gathering of over 1,300 financial professionals in Austin, Texas, Uhrig and Globsky relayed four other key pieces of advice they give to their own clients to a room full of advisors.
Lesson 1: Equities Are Good
Uhrig, the senior advisor at Fidelity, summed up her opinion investing in one tweet-length sentence: “Equities are good, #ignorethevolatility.”
Subscribing to the age-old saying that “Time in the market is greater than timing the market,” Uhrig said that a long-term buy and hold strategy is a better way to invest than timing market cycles. Pointing to data that showed annualized returns over 20-year periods, she noted that the difference in performance between the best 20-year period and worst 20-year period in the S&P is not very big.
“The penalty over long periods of time, even if you get a bad 20 years, it's not as much as you would think,” she said. “So it's very rewarding to be in stocks provided that you can be in over the long term and you can afford to stay in the market for multiple decades.”
According to Uhrig, despite the massive bull market of the last decade, investors have actually been net sellers of stocks. From 2009-2019, investors have taken $450 billion out of the stock market and put $1.5 trillion into the bond market.
“And what's interesting about this is that they did this even though the stock market is a three-bagger during this time. So usually what happens is, when the market is going down people take their money out, and when the market's going up, people put their money in. But they were so freaked out by what happened in ‘08 and ‘09 that they’ve been selling the whole way up.”
This, she said, is actually a bullish signal for stocks, because tops are made when everybody is in, and the net outflows in equities over the last 10 years suggests that is not the case.
Lesson 2: Rebalance, Rebalance, Rebalance
The most important concept for investors, according to Uhrig, is to continually rebalance your portfolio to stay within a target asset allocation.
“Rebalancing is a systematic way of selling high and buying low because you would've been selling as it goes up, then buying if you go below your target allocation. And so if you just do that on a regular basis, you can add a lot of value versus what most people do, which is to buy when it's up and sell when it's down.”
“If you’re rebalancing, what are you doing? You're selling high and buying low. It's exactly the instinct that people don't have,” said Globsky, the vice-chair and principal at The Colony Group. “People want to sell when it's at its lowest point and buy in when it's the highest point.”
It’s important to have an asset allocation plan and stick to it, Uhrig said, not to prepare for a stock market decline, but because the stock market declines. According to data from Fidelity, the U.S. equities market is at least 5% below its 12-month high 58% of the time. And 20% of the time, it’s 20% below the previous 12-month high.
“In today's world, everybody thinks for some reason that the stock market is supposed to go up all the time. So you get these headlines, ‘Stock market down three days in a row’ and it's like, ‘What do you mean? You mean the stock market doesn't go up every day?’ It doesn't go up every year. This is how the stock market is.”
Lesson 3: Ignore The Noise
Globsky cautioned that the best way to avoid fear in the market is to avoid the day-to-day noise of the market, especially in the headlines.
“My advice to people about the headlines is don't pay attention,” he said. “Don't watch CNBC, don't watch CNN, or Fox, or anything else, because it's just going to drive you crazy if you're watching it to tell us what's going to happen to the market. Watch the economy and see what's going to happen there, because that's far more important than any particular issue.”
In fact, he blamed the 24/7 news cycle as a reason why fear tends to rise in the marketplace.
“We are inundated with it 24/7. Whatever we do, whatever we turn on, it's everywhere in front of us. And we're consuming it. And when you consume it through print, online, through the airwaves, through Facebook, we tend to be consuming it more and more and the worlds in which we think we believe and not in a broader way. And so it's a self-perpetuating fear. And I think that drives a lot of the insecurity, a lot of the anxiety. At the end of the day, it doesn't drive the real economics. It doesn't drive whether a company is going to make money and bring value to shareholders.”
Lesson 4: Do Not Hang Your Hat On Timing Systemic Risks
The scars from the dot com bubble and 2008 financial crisis run deep. But when asked about how they would approach another potential bubble, both Uhrig and Globsky said they would advise to ignore it.
“There are [systemic risks], but the problem is you're not going to know what it is when it occurs. That's the problem,” she said.
Uhrig cited the dot com bubble as an example of this. Everybody knew how crazy valuations had become, “but the problem was that you had this long run after it became apparent. It's just very difficult to time that.”
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