Everyone is wanting to talk these days with markets on-again off-again. The common question at the moment is whether they should sell and get out of the markets. A long term retired client who has been with us through many historical ups and downs recently asked that same question. He mentioned friends who had moved to cash positions, he cited the recent volatility in the market that day, and he was wondering why he still had a solid equity allocation in his portfolio.
We talked about his friends who were in cash. Some had been in cash since the US election in November. We talked about how badly that cash allocation has turned out for them. In the meantime, our client had great returns. We talked about reality: we have never seen evidence that timing the market works. A saying you may have heard us say: when it comes to market timing, you’re either lucky or you’re wrong. He agreed that staying the course was the reasonable choice.
Our role as advisors is to help clients not fall into the trap of bad investor behaviour. As Warren Buffet says, “be fearful when others are greedy and greedy when others are fearful”. Our practice is built on a foundation of solid portfolio construction. We can’t predict the future, but we can and do build your portfolio with historical market behaviour in mind. This approach, rooted in the long-term observation of markets, is an evidence-based investing strategy.
The equities we recommend to clients are always fundamentally good quality, resilient businesses that will survive downturns. Fixed income complements the equities and can protect on the downside along other instruments like structured notes. The proportion of each depends on your particular needs and preferences.
This is especially important at retirement. We don’t believe that in retirement clients should get significantly more conservative. They’re not earning any more money, so they need their portfolio to last as long as they live. That could be another 40 years! Retirees still need to outpace the cost of living for a long time. Equities do that. They protect you from outliving your assets, a higher risk to most people than market ups and downs.
It is, however, important that if you are drawing from your accounts, as are most retired clients, that you hold a cash position from which to do so which is not moving with market swings.
Portfolio construction is the core of our behavioural approach. To keep all our clients on track, we need to be voices of prudence and trust. One of the tools we use is an evidence-based strategy in portfolio construction that serves clients and helps control impulses during emotional times.
