This is more of a State of the Union from a personal standpoint. When we discuss current affairs in our daily lives, especially in my business, it always brings me back to three topics that I talk about with my clients: the Economy, the Markets, and the Government. Most people intertwine these topics. However, as financial advisors and planners, I think we need to pull those apart, so that we really separate the three entities. So, depending on your perception, they are either three separate entities or three separate monsters.
The State of the Economy
The state of the economy is good. According to the Bureau of Economic Analysis, posted numbers for 2021 show that we’ve had positive quarterly increases in GDP. We’ve also seen unemployment numbers steadily decrease over the past year. Some people say that with our supply chain issues and everything being backed up that this is a negative for the economy; however, I look at it as more of a positive. Look at how many container ships there are stuck in those docks. The demand for the goods is great, and so, strong pent-up demand and record amounts of cash in people’s bank accounts should fuel demand even more so for the economy.
The State of the Markets
The state of the markets is good. Despite the pullbacks, we had a major correction at the beginning of COVID. We also had a lot of industries, sectors, and companies not only learn how to survive a global pandemic, but learn how to thrive in a global pandemic.
Whether we’re talking about work-from-home software companies, home delivery of goods and services or entertainment streaming services, everybody learned how to improvise and adapt. And that’s where the state of the markets is good – if we can weed out the day-to-day news and turmoil.
The thing that I would say to be careful of in the markets is the “get rich” attitudes. I think too many people get focused on “Hey I could go buy cryptocurrencies or these meme stocks that everybody talks about and I can get rich overnight.” That’s when advisors need to decipher what’s really going on out there on a day-to-day basis.
The State of the Government
The state of the government is really one’s own perception. It’s kind of in the eye of the beholder. It doesn’t even matter what side of the aisle you’re on, because policies and administrations are going to influence investor decisions one way or another. Decisions that investors make because of a policy or something that’s come out of the government may not be in their best interests.
I think that’s where we really have to be careful how we handle things, whether it’d be inflation that’s coming down the pike or finding answers to the SECURE Act passed last year. For investors who stayed invested in the pandemic era, their investments, generally, are higher. The volatility of the ups and downs has created opportunities: (1) to get invested with cash on hand, (2) to reinvest the dividends from investments at lower prices, and (3) to reallocate and rebalance on that side.
Clients Can Benefit From Market Conditions
A married couple in their late 40s is looking to retire in 10 years. Recently, they were very focused on the day-to-day market volatility. They saw the Dow down 1,000 points and read the ticker tape at the bottom of the TV screen warning about imminent massive inflation and it was too much for them. They decided to go to cash.
Working in a client’s best interest, we want to calm their fears, so we said: “Why are we invested in the first place? If we’re invested for long-term, we have opportunities.” So, I explained the opportunities: to increase their 401(k) contributions, to make sure we’re reinvesting all of our dividends and, when there is inflation it may not be good for your pocketbook when you’re buying things, but as an investor the companies you own can charge higher prices to be profitable. And that’s when they had an “aha moment.”
They said, “There are opportunities out there. We can weed out the noise and move on.”
And then there was a decade-long client in their late 50s who didn’t listen to our advice. Unfortunately, they decided to take matters into their own hands and liquidated their IRA early. We asked them not to do it. We said it would not be in their best interest. We showed them what retirement would look like down the road if they stayed where they were, and we crunched and re-crunched the numbers. We gave them updated plans. But they wanted to buy the most famous cryptocurrency on the market, thinking it was going to be the next best thing, and paid the taxes on the rollover and pre-59½ penalties.
Sadly, after they made their purchase, the cryptocurrency subsequently fell about 35%. Even though we had done all of the long-term planning, we couldn’t do anything more for them. It’s their money and they can do whatever they want. My job is to give the best advice possible. Neither Hefren-Tillotson nor I endorse using cryptocurrencies.
The State of the Client
Basically, the state of the client is good – if decisions are based on long-term plans and not on day-to-day volatility. The state of the client is not so good if you base your decisions on day-to-day volatility and daily news stories that influence sound judgment. As financial advisors, I think we need to step back and help everyone to make important decisions that affect their lives and are in each person’s best interest.
Personally, I take every client situation as if it were my own, or my parent or sibling. The stock market doesn’t keep me up at night, someone not taking the right advice, not making the right decision regarding something that I know is not in their best interest, keeps me up at night. I care about people. I make friends of clients, not clients of friends.