The Update That Wasn’t

Published On: February 6, 2018

Written by: Ben Atwater and Matt Malick

Before stock market volatility returned from its long sabbatical, we were planning to write a client update about trade-offs in investing.  In other words, you have to sacrifice one thing to gain another.  Specifically, you need to sacrifice some upside to protect against some downside.  We intended to write this update to address a few clients’ frustration with our conservatism about stock valuations and our unwillingness to let the market sweep us up in its euphoria.

Before the stock market’s back-to-back drubbings on Friday and Monday, stocks enjoyed an uncommonly long, uninterrupted ascent.  Markets were calm while climbing higher and higher.  As we’ve met with clients over the last year, we’ve been urging caution and recommending disciplined rebalancing by reducing equity exposure in favor of high-quality bonds.  We’ve also been reexamining the appropriate asset allocation given each client’s risk tolerance and time horizon, often shifting to a more conservative stance.

Rebalancing into bonds while the market was climbing higher was the prudent decision to marginally protect against future losses.  But the trade-off was foregoing some gains as the market rose.

Now that fear and volatility have returned, at least for now, investors would be wise to consider a different trade-off.  To achieve long-term financial goals, it’s vital to stay invested and for most of our clients, this includes an allocation to stocks.

Over the long-term, equities have delivered robust returns to patient investors.  But the trade-off, of course, is the occasional correction and bear market.

If the market’s troubles continue, we will be in frequent communication as we work to articulate the risks and opportunities that volatility will bring our way.  Even if this market gets far worse, it should not derail long-term financial goals.  Markets always have, and always will, experience periodic losses.  Our goal is to help you make prudent decisions as we endure another difficult stretch in equity markets.

As always, please do not hesitate to contact us with questions or concerns.

Please visit www.atwatermalick.com/ria for full disclosure materials related to recommendations contained in this update.