October 19, 2015

Advice That Adds Up During Down Markets

Written by Andrew Hunt

As recent global markets continue to test the patience of even some of the most stoic among us, how are you holding up? Are you finding it feasible (if not necessarily fun) to stick with your existing strategy, or have you been eying it with increasing suspicion of late?

If you fall into the latter category, we understand. In his book, “Your Money and Your Brain,” personal finance columnist and author Jason Zweig explains what is going on deep inside our heads during falling markets: “Step near a snake, spot a spider, see a sharp object flying toward your face, and your [brain’s] amygdala will jolt you into jumping, ducking, or taking whatever evasive action should get you out of trouble in the least amount of time. This same fear reaction is triggered by losing money – or believing that you might.”

In short, our amygdala, which Zweig refers to as “the hot button of the brain,” is a welcome ally in keeping us away from many of life’s threats. But it often plays against your best financial interests. Whenever you see bad market news, it’s best to assume that your instincts are going to spur you into panic mode long before rational thinking kicks in. And if you try to have a one-on-one showdown with them, your impulses just may get the better of you.

For this reason alone, one of our greatest roles as advisors is to remind you why it is highly likely that your best reaction to market downturns is to stick to the investment plan we’ve already helped you prepare to withstand just these sorts of rough patches. As Behavior Gap author Carl Richards once tweeted: “You don’t hire a real financial advisor because you aren’t smart enough. You hire one because you aren’t an objective 3rd party.”

There are other ways we add ongoing value to the financial well-being of our clients, during fair times and foul. For example, that investment plan we referenced above did not take place in a vacuum.

  • At the beginning of each relationship, we worked closely with our clients to assess their long-term goals, and what it was likely to take to achieve them.
  • Next, we build portfolios based on goals as well as our evidence-based understanding of which investment strategies are expected to work best, and which are more likely to fail during scary market downturns or giddy surges.
  • We meet with our clients periodically to revisit their goals and their progress. If circumstances changed, we worked with each client as warranted to ratchet up your expected returns or tamp down your risk exposure (while also seeking to minimize any trading costs or tax ramifications involved).

As such, we believe that the market risk that is intentionally built into each portfolio – and that each of is enduring at this time – should not be taken as a sign that “something is wrong.” Rather, we believe it is a sign that the portfolio is working as planned.

Each plan was never intended to eliminate all risk or guarantee certain returns. We designed it to offer the best, evidence-based odds for personal success. Our aim is to help each client strike a reasonable balance between minimizing the market risks that you and your amygdala would rather avoid, while moving toward the financial goals our client’s would like to achieve.

If you remain in doubt, though, we still understand. It’s possible that your risk tolerance isn’t what you thought it would be when you were planning for it in a theoretical sense. It’s also possible that your life’s circumstances have changed, and it just happens to be time to reallocate your portfolio, regardless of what is going on in the markets.

If you have questions we can explore with you about your goals, your investment portfolio and current market returns – we would love to hear from you. Please reach out to us any time.

We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management.