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Stock Market Spooks

October can be a scary month, but it doesn’t have to be.

When it comes to October and the stock markets, well, this can be a spooky month for investors. We’ll be observing the 20th anniversary of Black Monday in a couple of weeks on October 19, as well as Black Thursday, which took place on October 24, 1929, and set things in motion for the Great Crash of Black Tuesday, on October 29, 1929. 

As always, our news media will will do their best to remind you of all the terrible things that can happen to you in the stock markets. While it’s important to remember history, I personally believe that it’s important to remember history within its context, and not try to put today’s economic and stock market in the same box as our financial past. 

When it comes to equity investing in general, I find that most of you who come into our office, when asked about your risk tolerance, give me some sort of party line response such as, “I want to invest for growth, but I don’t want to be wiped out in a market crash. I want to play it a little safe.” I see nothing wrong with this response, as that’s where about 80 percent of you are. (There’s that old 80/20 rule again.) So, we allocate your portfolio with the goal of participating on the upside, without wiping out on the downside. 

This allocation also works well for those of you who do open your statements every month when they arrive in the mail or electronically, and have a visceral reaction to whether your balances are up or down. I would estimate that about 50 percent of you do open your statements regularly, and you’re the half that, when you see something that looks out of whack, or eMoney hasn’t pulled an account balance correctly, you pick up the phone and say, “Um…I have a question: Where’s my money?” I know what you actually want to do is scream and flip out because you’re sure that this time, it really is gone. Luckily, and I say that because there is some luck involved, every single time one of you has phoned or emailed with this concern, we’ve always had a positive answer for you. We’ve never once had to tell any of you that your money is gone. We find that pleasing. 

The reality is that, while all of you are scared of that fatal stock market crash, even those who lived through the crash of 1987 have confirmed with me that a) you didn’t die, b) it didn’t affect your day-to-day lifestyle, and c) the reason for that was because you didn’t sell at the bottom. I’m not suggesting that another crash is imminent. In fact, I believe that there’s less likelihood of a crash in today’s current environment than ever, due to the sophistication of software and where we and the rest of the world are in the interest rate cycle. 

This doesn’t mean there won’t be corrections. We experienced one that scared several of you back in the fall of 2015 to about February of 2016, but now, you probably don’t even remember that. This could be because you’re one of those who never opens your statements, which I admit is a good strategy for avoiding panic. Or, perhaps you heard that we were being proactive and buying on sale, and like any savvy shopper, you felt good about that. 

The point of all this is that it’s been my belief that you should not put money directly into the stock market if you’re going to need it in the next 18 months. Just because it’s not in the stock market doesn’t mean it can’t be earning a yield that’s better than what you’re getting in a bank account in the bond market. And, my job is to make sure you understand the different types of risk within your portfolio, as not all risks are created equal. 

Just as there’s risk of losing it all in a big crash, there’s also the risk, and I keep saying this, that inflation will eat away at the buying power of your money. There’s also the risk that no one talks about, and that’s the risk of being under-invested in a bull market. This is where I find that new clients have often been misled in the past. We truly enjoy educating you and anyone you’ve referred to us about what they’ve been doing, and what they could be doing. 

However, the biggest risk that I believe any investor faces does not come from actively investing in the equity markets. It comes from investing in the markets, and then not having a captain to steer the ship. Think with me for a minute. Say you just went out and purchased a $1 million sailboat. You’ve put a big portion of your assets into that boat, and you’ve fully stocked it with everything you need, put the sails up, found a nice breeze….and then you just push it out to sea. You say, “So long, boat – I’ll check in when I’m ready to retire, or my kids need money for college, or I need to make a career change and want to know if I can afford it.” 

You wouldn’t do that. No one would send a boat out into the ocean without a captain. The same applies to your hard-earned (or inherited) assets. You need a captain with a strong crew to make sure you’re always taken care of, and who will actively steer that ship through any storm that lies ahead. At the same time, that captain is always asking, “Is this the best thing for the owner of this boat?” That’s you, in case you forgot. 

This isn’t just what we do – it’s who we are. Helping you and guiding you with your financial decisions is what our team truly enjoys about coming to work every day – when we’re not at Keeneland or on the lake with our families!
But, even when we are out and about having fun, as we know you like to do too, we always keep our eye on the sea and one hand on the wheel. I can tell you, now that we have our Albridge reporting system that allows us to more easily look at your account history, those of you who have allowed us to captain your ship have fared much better than those who insisted on keeping their hands on the wheel as well. It’s not that you’re not doing okay; you are. You’re just not doing as well as you could be. 

As we look back this month at historical events in our financial market past, let’s not lose sight of the end goals that each of you has (which may or may not involve a $1 million boat). Whether that’s to continue in retirement if you’ve already quit working, to be able to retire if you’re semi-retired or still working, and to be able to take the occasional ride on that proverbial sailboat now and then, we’ve created a plan that allows you to enjoy your assets not only after retirement, but along the way as well. 

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