It’s no secret: These are uncertain times. And financial markets, as investors know, hate uncertainty.
Throughout the pandemic, some local financial planners have been advising their clients to keep the big picture in mind, and to refrain from wholesale portfolio changes based on nearsighted decisions.
“What has gotten most attention and most concern, of course, is the volatility in the market,” said Maile Foster, certified financial planner for McAlpin Foster Advisors. “For people like me who have been investment managers for over 20 years, we’ve seen ups and downs multiple times before. So we’ve been spending a lot more time coaching our clients and helping them see the big picture … and not look at one day or one week or even one year, but to look at the long-haul picture of where they’ve come from and where they’re going.”
The Business Journal spoke with local advisers about how current events are impacting financial planning and investing, and what investors should keep in mind as they weather the storm.
THE 2020 ELECTIONS
Jeffrey Markewich, a wealth adviser for Clear Wealth Management, said elections alone shouldn’t be cause for investment concerns. But what is a concern for many, Markewich said, is the unknown.
Throughout the 2020 presidential campaign, President Donald Trump was more of a “known commodity” after four years in the White House, Markewich said, while the challenger, former Vice President Joe Biden, was seen as “more of a question mark.”
Because the two candidates have expressed starkly different views toward taxation, federal regulations and trade (with roughly half of the country supporting the policy preferences of each candidate), Markewich said both sides of the political spectrum seem unsure, and even afraid, of investing around the election.
He said when a new president is elected, short-term market fluctuations are inevitable.
“The next administration can change a lot of things through executive action,” Markewich said. “If a new president also has cooperation from Congress, they can do a lot of things to affect policy in both long and short term.”
Foster, of McAlpin Foster Advisors, said uncertainty has typically been “priced into the market” in past election cycles.
“The markets weren’t impacted as much when Obama was reelected because there wasn’t as much uncertainty because we all knew his policies and we knew what to expect his next four years,” Foster said. “But there was lots of uncertainty when President Trump was initially elected, and there has been lots of uncertainty leading up to this election. But I can tell that the uncertainty about who’s going to win is already priced into it. The markets are kind of a leading edge indicator — they’re always looking down the road. So I think, because of polling, the markets are expecting that there will be a new president and that’s already priced in.”
While there might be some short-term market volatility as a result of who occupies the oval office and chambers of Congress come January, the long-term impacts are likely less significant than many might think.
“What long-term history has told us is that regardless of the breakdown of Congress and the president … there’s only so much that they can do that can influence the economy,” said Jeff Dinkel, regional leader and financial advisor for Edward Jones Investments.
“Yes, politicians can influence the economy some — taxes being a part of that — but what I’ve learned over my 22-plus years [in financial advising] is that businesses will figure it out. They will make the necessary adjustments.”
Brian Bennett, president of Bennco Advisors, said when a new president institutes policy changes, businesses simply adapt.
“Those things just end up netting each other out,” Bennett said. “And if they increase business tax, earnings are going to be impacted … and that may impede growth prospects, but those things don’t happen automatically and they don’t happen overnight. Well-run businesses are usually able to respond and reposition to the shareholders’ advantage.”
A far greater contributor to the volatility of the market is the nation’s ongoing struggle to contain the COVID-19 pandemic.
With cases surging across the country and many states seeing record highs in daily transmissions in recent weeks, there’s concern that the national economy and the small businesses that support it will continue to take a pummeling well into 2021.
“A good, strong economy needs money moving,” Foster said. “And if everybody’s sitting at home and not spending money at their local small businesses, that really, drastically, affects the economy.”
Dinkel, of Edward Jones, said there’s legitimate fallout from the pandemic due to business shutdowns, large-scale national unemployment and myriad other factors that will likely only be resolved with a widely available COVID-19 vaccine.
Bennett, of Bennco, said the Coronavirus Aid, Relief, and Economic Security Act was “really well timed” to mitigate some of the biggest economic and market impacts, and said a second stimulus could be the key to bridging the gap until a vaccine is available.
And while current conditions have many investors feeling uneasy, the stock market has not only survived past economic crises, but come out stronger on the other side.
Bennett cited data from a Q3 capital markets chart deck by JP Morgan Chase showing the pandemic recession has created a 10.1 percent decline in national GDP. The Great Depression saw a decline of 26.7 percent over the course of about a decade, he said, adding the Great Recession (2007-2009) saw GDP drop of just 4 percent.
“So that’s how severe this [pandemic recession] was and it happened so fast,” Bennett said. “Even through all of this, the big companies in the S&P 500 — the majority of them are going to increase their dividends this year. So that just is a testimony to the resiliency of our big businesses and their ability to manage through these crises.”
Even in the consumer discretionary sector, Bennett said, which includes airlines, hospitality and retail, nearly 40 percent of companies are increasing their dividends.
“And that was the hardest hit sector,” Bennett said. “So we’ve got some strong companies and some strong industries, and they’re really committed to their shareholders and their owners in terms of at least providing them with dividends.”
History, Dinkel said, proves that markets always correct themselves.
“If you look at any market statistics … we have a 100 percent recovery from all prior market pullbacks, and after every pullback we have gone on to set new highs,” he said. “So the pullback that we’re currently in — we’ll get through this at some point and we will begin to see new market highs somewhere in the future. It’s just a matter of when.”
DIVERSE PORTFOLIOS AND FINANCIAL ADVISING
While every investor’s portfolio is different and reflects individual goals and needs, market uncertainties underscore the importance of diverse investments.
“For most people, their portfolio is not just in the Dow Jones, it’s in other things,” Foster said. “And those other things maybe go the opposite direction of the Dow. So like stocks, when they’re going up, people aren’t interested in bonds. And when stocks go down, then people are interested in bonds. Those are two different asset classes that tend to do the opposite of each other and so, if you have a little of both in your portfolio, you’ll always have something going up, no matter what’s going on.”
Foster said she constantly tells her clients that “no matter what is happening in the world, it’s good for somebody,” adding that one key to wise investing is asset allocation.
“There have been studies that show 92 percent of the performance of a portfolio is the result of the asset allocation decision,” she said, “not the picking of the timing or a hot tip from your brother-in-law.”
Dinkel said it’s important for investors to keep goals in mind and let the overall strength of the market, rather than fear or emotion, dictate investments.
“A mistake a lot of investors will make is, they’ll look at their 401k statement and it will be down in value temporarily. And instead of either continuing to invest or maybe even temporarily increasing their contribution while the market is on sale, they quit investing,” Dinkel said, adding financial advisers are more important during uncertain times because they can “get people to stick to their goals and try to remove the emotion from it.”
He said that’s a value for clients “because they’re not getting out when they want to, when it hurts a little bit or they’re uneasy, and they’re staying invested and sticking to their long-term goals.
“Because we know the markets will correct themselves eventually.”
Editor’s note: This article is not intended to provide specific investment advice. Consult a financial adviser.