“Don’t just stand here. Do something!”
As investors continue to see sharp declines in the value of their portfolios in the current stock market swoon, emotions are rising. Despite all the well-intended expert advice about staying calm, it is normal to feel anxious. With anxiety comes an urge to do something. We agree, and here is what we are doing at Bristlecone, as well as some more recommendations for you to implement.
To simplify things to the extreme, we have 2 types of clients: those in the savings leg of their life cycle and who are adding to their portfolio; and those in the spending leg who are withdrawing funds. Our action plan and recommendations are a function of which profile you fall into.
For clients who are currently adding to their portfolio, a market swoon gives you an opportunity: you’re now adding to your portfolio while prices are down. Take advantage of it: it will enhance your future long-term returns. Our recommendation is to keep adding, and if you can afford it, try to save a little more.
For clients who are retired and withdrawing funds regularly, your portfolio is made up of a balance of stocks and bonds. The mix was carefully chosen for your portfolio to weather this type of turbulence. We spent the last few years rebalancing by selling stocks—more often than not—as these investments rose faster than bonds. What’s the plan now?
- Make sure that your spending from the portfolio does not exceed our recommended levels. If it does, consider limiting your spending on non-essential expenses or postponing any planned big-ticket items.
- As the stock portion of your portfolio declines, while bond prices rise or remain stable, we’ll fund your withdrawals by selling the latter. Depending on your situation, and where your portfolio mix stands, we might even add a bit to your stocks.
With interest rates reaching historically low levels, it might be worth taking advantage of cheap loans to shore up your personal balance sheet:
- Consider refinancing your mortgage with a lower fixed rate;
- Look into consolidating your student loans and possibly getting a lower rate;
- If you have credit card debt, see if a personal loan will save you money.
Finally, if you had cash on the side that you were planning on investing for the long term, don’t wait for a better time. Consider investing a portion of it now, such as one third. If the market keeps going down, do another third. Be greedy when others are fearful.
If you’re not sure how these recommendations might apply to you, give us a call. We’ll review the available opportunities.
One of Bristlecone Value Partners’ principles is to communicate frequently, openly and honestly. We believe that our clients benefit from understanding our investment philosophy and process. Our views and opinions regarding investment prospects are "forward looking statements," which may or may not be accurate over the long term. While we believe we have a reasonable basis for our appraisals, and we have confidence in our opinions, actual results may differ materially from those we anticipate. Information provided in this blog should not be considered as a recommendation to purchase or sell any particular security. You can identify forward looking statements by words like "believe," "expect," "anticipate," or similar expressions when discussing particular portfolio holdings. We cannot assure future results and achievements. You should not place undue reliance on forward looking statements, which speak only as of the date of the blog entry. We disclaim any obligation to update or alter any forward-looking statements, whether as a result of new information, future events, or otherwise. Our comments are intended to reflect trading activity in a mature, unrestricted portfolio and might not be representative of actual activity in all portfolios. Portfolio holdings are subject to change without notice. Current and future performance may be lower or higher than the performance quoted in this blog.
References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in an index and returns do not reflect the deduction of advisory fees or other trading expenses. There can be no assurance that current investments will be profitable. Actual realized returns will depend on, among other factors, the value of assets and market conditions at the time of disposition, any related transaction costs, and the timing of the purchase.
Economic factors, market conditions, and investment strategies will affect the performance of any portfolio and there can be no assurance that a portfolio will match or outperform any particular index or benchmark. Past Performance is not indicative of future results. All investment strategies have the potential for profit or loss; changes in investment strategies, contributions or withdrawals may materially alter the performance and results of a portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client's investment portfolio.
This content is developed from sources believed to be providing accurate information, and it may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.