For the first time in many years, the markets are down. The S&P 500, The Dow and NASDAQ are all down between 8% and 23% (as of the end of May). This can be really uncomfortable to watch, especially since we haven't had a downmarket in a long time. I've been through several market downturns (one of the benefits of being older, I suppose. I've experienced these downturns since 1993), and I know the emotions and actions they can provoke. It's why I believe that what happens when markets go down is every bit as important as when they go up. Here, I review the steps I take to prepare a portfolio and as I monitor accounts.
At the core is YOU. Why are you investing? Are there certain things that are important, such as certain values? How comfortable are you with market risk? How long of a timeframe before you'll need the money? You will have a personalized strategy, as each client does, I follow a standard process to establish it.
My Process
First, I expected there to be market volatility. Frankly, I'm surprised we haven't had more before now, and I expect it to continue. The strategy for a portfolio takes these fluctuations into consideration. I look at how investments have performed in down markets in the past as well as how successful they've been when there was an up market.
For overall market and portfolio recommendations, I get input from the experts at Cetera Investment Management, as well as ratings from firms such as Morningstar. I listen to a number of economists and market experts, and pay close attention to those with a history of accuracy and perspective.
For mutual funds, I look at whether there were manager changes, strategy changes, whether they've drifted from their stated objectives, etc. In other words, are they doing what they said they would do. For stocks, I look at several ratings firms, at their dividend payment history, whether they've had major changes (new top management, strategy changes, etc.). I also look at their price relative to their peers.
When I compile a portfolio, whether it's all mutual funds, or a combination of funds, stocks, ETFs, etc., I look at how it is expected to perform when markets are up and when markets are down. Again, what happens when markets go down is just as important as when they go up.
As time goes by, I routinely review the investments in your account to identify whether things have changed with them.
We haven't had a high rate of inflation for a long time, and we haven't had a prolonged market downturn in more than 14 years. There are professionals who are nearly 40 years old who have never been through a downturn as a working adult. It's unfamiliar. It's uncomfortable. Because it's been such a long time, we are likely going to feel them more acutely.
It's easy for websites and news media to sensationalize the markets and economy and or for predictions to be made. Please keep in mind that websites, news media, etc. are in the business of generating traffic, which generates revenue through clicks, views, etc. Those things have the ability to impact your perception, and with all of this being unfamiliar, that can have an impact.
It's important for you to feel confident in any strategy we put together. Whether you are an existing or prospective client, if you have questions, you deserve to have them answered. If you want to talk about your account, want to revise your strategy, ask questions, etc. please know that I am here for that.
