Three Clients and the Last Three Months

by Jeff C. Johnson

Serious couple with financial adviser

This year, 2018, hasn’t been a blockbuster year in the markets. After reaching a peak early in the year, the broad US stock market has yet to overtake those highs from seven months ago. Leading indices of American large company stocks, though, are near all-time highs. Some so-called experts are saying the market is due for a big drop in prices.

Still, after 2017, a year when the broad market indices were up every single month (the first time ever), it feels to some like this year is difficult. Combine with that the Fed’s very modest boost in interest rates, the reaction to which is downward pressure on the price of bonds and bond mutual funds. 

Most diversified portfolios are not soaring in value this year, and many are down modestly over the past few months.

Last month, I got a call from a client, a professional and a very smart guy. A cautious investor with limited stock-based investments, he’s heard me talk about the importance of long-term perspective to reach a long-term goal.  

“I’ve been watching my month-end statements, and over the last three months, the value has been slipping. This seems like a bad trend that is developing. I’m down in value for the year, and, at this rate, I’ll be broke in two or three years,” he said. “This market has gone up too much, for too long.”

Also last month, I got an email from a client with a widely diversified portfolio, including a component in short-term, high-grade fixed income. She wrote, “I know I’m in this for the long term, but I think my account is down [significantly] from a few months ago. What are we going to do?”

Then last week, I visited out-of-state clients for a regular review. The conversation started with their concern that their account was down this year. “We gotta do something!” was their conclusion.

If you’re reading this and you’re an investor, the valuable takeaway is the knowledge that markets absolutely do not go up every month, every year. As you read about my client conversations, you might have even thought about how silly they sound. Short-term thinking, especially when applied to recent past results, can lead to some harmful expectations and potentially bad decisions.

If you’re an investment professional, you’ve no doubt had, and are having, conversations with clients that listen to the news, their brother-in-law, or coffee-shop advice and are impatient for results. Brokerage types in the business thrive on trading and transactions, and media folks need a story today and every day so they have content for a program. Never mind that it ultimately is not good for the consumer/investor. It sets a challenging foundation for the time-tested establishment of a long-term, properly allocated portfolio.

Thankfully, in each case, my client reached out to me to talk about these concerns, to improve their perspective, and to reestablish the validity of their long-term plan and asset mix.

Eventually, there will be a dramatic decline in market value that may lead people to sell impulsively without speaking to their professional adviser. The problem with that is this: When do you get back in? That just so happens to be the title of my next blog post.