Wind Changed Updated 3-18-2020
We have had a great run in the capital markets and in the wealth advisory business. Unfortunately, the recent market action signals that the wind is no longer at our back. This week we will look back and discuss what we can expect going forward.
HistoryThe wind has been at our back longer than the recently ended 11 year bull market. It helped the Trust Banks attract clients and manage their money investing in lists of well known blue chip stocks. The wind changed and accounts lost value causing angry clients to look for new firms to invest their money. Professional money mangers emerged and over the next cycle they thrived until the wind changed. The next business that picked up the investment torch was the lower cost funds who passively replicated the major market indices. Now that the wind has changed we should start to look for the firm that has washed their hands and found an improved investment strategy.
Donald Rumsfeld introduced us to an idea that that there are unknown knowns. The recent outbreak of COVD-19 has proven to be an unknown that is creating panic in our society and our markets. Unknowns are impossible to predict but "alleged" solutions are easy to sell to scared investors. The firms that can ease the investor's fears and present new and credible solutions should take the baton and ride the new wind direction.
Financial planning can help us feel like we are in control. However, using a financial planning tool with static Ibbotson's historic returns and correlation coefficients is not a credible solution in our current environment. We recommend a solution that is dynamic and takes advantage of our computing power while accepting the reality that the wind has changed. Good wealth managers can help. If they provide a proposal ask how they arrived at their equity return forecast. Hopefully they realize that the wind has changed.
Insurance firms define last week as an "act of god". The market last week scared me, but I don't think we should resort to a wind dance to find our next solution...
The good news is that the wind will change:) Don’t panic. Throw some grass in the air and find the new wind direction. Call your clients and ask what the wind is in their neighborhood. They are most likely at home sheltering in place.