Investment Firm in Houston: “Surprises” Are the Only Predictable
We never see them coming.
Unexpected downturns in the market are often extreme and always surprising. A year ago, we didn’t see the extreme volatility of the market following the start of the Coronavirus pandemic, and that’s why the volatility felt so intense for so many people – we couldn’t have expected it.
Here are some statistics from the investment management team at Linscomb & Williams:
- The longest bull market ever started in 2009 and lasted 144 months, up by about 400 percent.
- That essentially came to a screeching halt in March 2020 when the market declined 34 percent.
- This bull market was followed by the fastest bear market on record. We were really only in a bear market for about a month, when typically, they last about 22 months and have a drawdown of 44 percent. The bear market in 2020 lasted less than 5 weeks and represented about a 35 percent decline.
So, what can we take from this experience, and what can we expect in 2022?
The Truth About Bull Markets
While bull markets can help you rebuild your retirement assets, they should not be relied upon as an investment strategy. No one has a crystal ball that can accurately predict the future performance of the stock market.
The closer you are to actual retirement, the more thoughtful you need to be to protect the current and future value of your assets. Knowing how to find the right balance between protecting what you’ve accumulated during bear markets while participating in the likely continued growth of markets is the key to a sound financial future.
Let’s talk! Schedule a no-sales conversation with the team at Linscomb & Williams to see how we can help.
The Tale of Two Stock Portfolios
At Linscomb & Williams, we spoke with many people who sought our advice after the pandemic-induced market downturn last spring. Here are two of those stories:
“John Doe” came to us fearing the worse. He had recently retired and his exposure to the stock market was primarily grounded in a well-diversified mix of blue-chip stocks, most of which pay consistent dividends that have shown a good record of growth over the years.
“Jane Doe” also scheduled a conversation to talk with our team. She planned to retire in a couple of years and had exposure to the stock market primarily through stocks that she accumulated as a career employee of one of the major airlines. The airline stock is publicly traded but pays no dividend.
In a broad scale market decline like the spring of 2020, both John and Jane had to watch their stock values decline, Jane feeling the pain a bit more for obvious reasons. John, because he continued to receive uninterrupted income and was broadly diversified, really had no reason to panic. He could take a bit more patient and long-term view of his situation. Jane, however, faced a more challenging situation, because she was not diversified and had no income stream to provide cashflow while awaiting a market recovery in her stock, and she wasn’t sure how long that wait may be!
Income is highly valuable during market declines because it limits your need to sell assets to produce spendable cash. This is particularly important for pre-retirees like Jane. When you sell during a significant market decline, your portfolio is hit twice as hard. Since its value has declined, you will likely need to sell more than you’d planned to produce the cash income you need to maintain a particular lifestyle. This leaves you with less money invested for the recovery, which can undermine the future rebound of your portfolio.
Luckily, we were able to work with Jane and help her reassess her retirement plans. When the market rebounded shortly after it fell, Jane came out unscathed.
There are many other stories that came from this time period that we could share. Read our recent blog post: 4 Real-Life Examples of How Retirement Can Innocently Go Wrong.
The Lesson We Can Take Away
Declining market values are tough to watch. Significant market volatility at or near retirement can be even hard to endure, since you don’t have as many options as you may have during your working years to make up for any realized losses.
It’s natural to feel nervous during significant stock market volatility. However, if you find yourself losing sleep at night, worrying about your investments, it may be time to re-evaluate your risk tolerance. While you may have thought you knew how you’d respond to market downturns, many people learned just how they really did feel.
The silver lining to a volatile market is they can be a useful tool to gauge your true risk tolerance. Maybe you thought you were a high-risk-tolerance investor before, but now, you may have realized that you don’t like to see your portfolio make such wild swings.
Talk to our fiduciary financial advisors to see if your financial plan makes sense for you.
Linscomb & Williams is a fee-only fiduciary investment and wealth management firm headquartered in Houston, TX that has been serving individual investors for more than half a century. Our dedicated staff of Certified Financial Planners™, CPAs, CFA® charter holders and attorneys can help you establish a financial plan and incorporate different investment strategies that align with your risk tolerance and your personal financial goals. We offer a complimentary Financial Second Opinion so you can gain some insight into what it would be like to work with the team at Linscomb & Williams. There’s no obligation from these meetings, because we truly believe that a simple conversation can go a long way.
As we start a new year, reach out and schedule a time to talk with our team. We’re here to help.