Stay the Course in VolatilitySubmitted by Kaizen Financial Advisors, LLC on August 9th, 2019
During the past week, stock prices dropped sharply on fears the trade dispute between the U.S. and China had escalated.
Investors woke to the news on Monday that the People’s Bank of China had manipulated its currency, allowing the yuan to fall to its lowest level versus the dollar in a decade. A weaker yuan makes Chinese exports less expensive in foreign markets. It can also help offset the impact of U.S. tariffs on Chinese products.
The currency news comes just days after the U.S. announced plans to tax $300 billion of Chinese goods at 10% starting in September. The new round of tariffs is in addition to the existing 25% tariffs imposed on $250 billion in Chinese products. It also comes less than a week after the Federal Reserve lowered short-term interest rates by 0.25%.
For investors of any level, this type of market volatility is unnerving and can make you question your portfolio’s approach. But remember, your financial strategy is based on your goals, your tolerance for risk, and your time horizon. We designed this approach, so you never need to make hurried decisions when volatility picks up.
Now, there may be a situation in the future when you may need to adjust your strategy. This is part of smart investing, but those changes should be driven by your personal situation, not headlines that can cause quick dips and perhaps fast relief. Let’s take a closer look:
Take the long view.
Markets typically go up and down, and you’re likely to experience several significant declines during a long investing career. But even bear markets—that is, periods when the market fell by more than 20%—historically have been relatively short. Going back to 1966, we found that the average bear market lasted a little longer than a year (505 days). The longest of the bears was roughly two and a half years (915 days), and it was followed by a nearly five-year bull run. Timing the market’s ups and downs is nearly impossible, so investors would do well to ignore the noise and stay focused on their plans.
If you need your money soon
It’s a good idea to hold those funds in assets that historically have been relatively liquid and less volatile than stocks, such as cash and short-term bonds. In addition, defensive assets, such as cash, Treasury securities and other government bonds, can help stabilize a portfolio when stocks are slipping.
Meet with your Kaizen Advisor
A minimum of a once a year annual meeting is helpful for Kaizen to stay up to date on your finances and goals. During our meeting we will look at where you have been and focus on where you are going. During this meeting we will make sure you are still on track to achieve your financial goals and identify any changes you need to make to maximize your wealth. Keep in mind, in any given year there are changes in tax law, investments, and your personal circumstances. The ride is bumpy, so it is important to recalibrate and get back on course.
What Kaizen Does for you:
- Rebalances your portfolio. Market changes can skew your allocation from its original target. Over time, assets that have gained in value will account for more of your portfolio, while those that have declined will account for less. Rebalancing means selling positions that have become overweight in relation to the rest of your portfolio and moving the proceeds to positions that have become underweight.
- Make sure you have a diversified portfolio. Volatile markets can reveal that portfolios their owners’ thought were appropriately diversified in fact aren’t. Kaizen manages your portfolio to make sure that each asset class you own is adding value and matches your target asset allocation.
- Save you taxes Tax efficiency is an attempt to minimize tax liability when given many different financial decisions. By becoming more tax efficient in your portfolio we are plugging the holes in your leaky bucket which means your wealth grows faster.
- Be a reasonable sounding board Making money isn’t easy. Two tell-tale traits of speculation are a short time frame and an expectation of extraordinary returns. The sentence “You have to get in now or you’ll miss out on easy money,” is uttered frequently and passionately by those touting whatever seems hot at the time. We help give you perspective on ALL investment opportunities.
- Stay the course when the water gets choppy. When investors panic, they can shoot themselves in the foot. New data by Dalbar, Inc and independent research group, suggests that’s what happened again last year. In 2018, bad trading decisions caused the average U.S. investor to lose roughly twice as much as the markets decline.
As your advisor, we keep a close eye on the markets and watch for any shift that may call for a change in your portfolio. We consult experts and we work tirelessly to stay atop financial trends, so you can rest easy even in market turbulence.
We are your trusted advisor. We want to take away the stress and anxiety in your life so you can spend more time enjoying life to the fullest.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this newsletter (article), will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Kaizen Financial Advisors, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current written disclosure statement discussing our advisory services and fees is available for review upon request.