Ouch! Markets are recovering today, but these have been a tough few days, and it may stay tough for a while, so I thought that I would reach out to all of our clients with a few thoughts. This commentary may look familiar to you, since it contains many ideas and several paragraphs from what I have written during past market pullbacks.
For the last 2 days we have witnessed the downside of increased volatility in the financial markets and it is natural to wonder how this may impact your wealth. Zimmerman Wealth Management, LLC remains vigilant and continues to monitor market developments. The changes that we made to our bond portfolios over the last 60 days reflect our concern about when the next recession will come (now, or in 24 months?). But, this week, we do not see a need for significant portfolio adjustments as a reaction to the sliding markets.
A few important thoughts:
1. Financial “gurus” and the general press accentuate the “now.”
Fear is a natural reaction when markets are moving down rapidly. However, we believe that fear is not a viable long-term investment strategy. Calmer heads usually prevail. Staying glued to a business news report may not be the best use of your time when we are in a decline driven by some news, some fear and lots of speculators.
2. There is no free lunch
The reason we expect higher long-term returns on equities (stock investments) as opposed to cash and bonds is because equities have greater volatility. There is no free lunch in the financial markets, and we have to accept volatility in times like this in order to earn the expected higher long-term returns. ZWM takes a strategic, long-term view on asset allocation and your portfolio is invested in a model based on your unique financial and personal circumstances.
3. Market timing does not work (at least not all the time for all the market-timers)
Market timing is the holy grail of speculative investing. If one could time the markets successfully and do it consistently, the rewards would be great, but speculative investors typically end up with sub-par performance due to the seeming impossibility of getting the timing just right. Despite much attention in the media to being tactical (i.e. market timing), we are not aware of investors who have over the long term, consistently timed the markets with significant success. Although this holy grail does not exist, the good news is that one does not need a crystal ball to invest with success. The benefits of a long-term, strategic view are compelling, and the higher returns associated with investing some monies in the equity markets is dependent on being disciplined through both good and bad times.
4. The importance of diversification
One of the important lessons from the past is that diversification works. While this may not be the case on a day-to-day basis, a mix of different types of assets provides a smoother and somewhat more stable ride for your portfolio.
As your financial fiduciaries, we care deeply about your financial well-being, and it is in times like these that it is important to stay calm and refrain from making decisions that may be detrimental to your long-term wealth. In the meantime, we will monitor for rebalancing opportunities that may add value to your portfolio.
As always, please do not hesitate to contact us if you have any questions or concerns.
Tom Zimmerman, and all of us at Zimmerman Wealth Management, LLC