Don’t time it. After almost a decade working in wealth management firms and large banks, I’ve come to understand this simple fact: unless you’re a standup comedian, you probably don’t have timing down.
I started my career in 2004 — heady days — researching on contract for investment teams while I was still an undergrad. After college, I moved into wealth management. Investors were chasing equities like six-year-olds go after Halloween candy. Diversification was just another word for missing out.
During the panic of late 2008 and early 2009, my clients abandoned stocks, and often their entire investment plan, in droves. Rebalance the portfolio to buy on the dip? No way. Wealth advisors were all charlatans. Brokers were predators. Banks were just scary places where money vaporized. The only safe place was the mattress, or an underground bunker.
At 26, I was not the world’s most inspiring proponent of long-term investing. Some of my clients had owned some assets before I was born.
In 2008, many went to cash. Two years later, many regretted it. Yes, the market tumbled, but it eventually rose again. We are now in the midst of one of the longest bull markets in US history.
Still, when I left for graduate school in mid-2010, less than 60 percent of my clients who had cashed out were back into equities, and even they felt like they were jumping into the north Atlantic in January.
The goal of asset allocation is, in theory, to provide insulation against market fluctuations, and to take advantage of them. Risk assessment is supposed to determine your asset allocation by gauging how you would react in circumstances like the Great Recession.
We tend to be Pollyannish when we assess ourselves, often ignoring how we would actually feel if we lost 20% of our portfolio.
How many of my clients changed their goal-based, vetted asset allocations in 2009? More than 75%.
I’m sure the opposite is happening again now – as equities have risen, investors clamor to increase equity exposure regardless of assessment results. There are few known remedies for human nature, although automation might do the trick.
I write like I didn’t get sucked into the panic of the crash. I did. I cashed out of a diversified portfolio and opted for 100% money market in my non-retirement account.
I was saving for grad school, and didn’t have a clear picture of my upcoming expenses – cash in hand seemed safer than stocks roiling in the markets. Like many investors, I missed out on a significant portion of the Bull Run. I did, however, find peace of mind over that time and learned, to parse a phrase, that you can’t always get what you want, but you might find that you get what you need.
Today, with near all-time highs in US equities, I’m back to a fully diversified portfolio. If the market drops 20% or more again, will I run to cash? Doubtful. I’ll just try to avoid my 19th nervous breakdown…
The views expressed herein are not intended to serve as a forecast, a guarantee of future results, investment recommendations or an offer to buy or sell securities by FutureAdvisor. Differences in account size, timing of transactions and market conditions prevailing at the time of investment may lead to different results, and clients may lose money. Past performance is not indicative of future results.