What you do makes the difference
One of the topics that comes up when we take on new clients is how they fared during prior market declines. The basic characteristics of their experiences are consistent, with differing degrees of fearfulness, anxiety, confusion, or other unpleasantness expressed.
Each one of us was affected by COVID-19 in some way and we all saw the same upsetting news during 2020. The record setting stock market drop, the protests, and the vitriolic election rhetoric may not have upset us in the same way or to the same degree, but we were all made aware of these same events. Yet we are meeting prospective clients who have had very different investment returns through this pandemic. Why?
Simply put, these prospective clients got different results because of what they did in reaction to news.
Simply put, these prospective clients got different results because of what they did in reaction to news.
We face the same three choices about our investment holdings every day. We can sell some (or all), buy more, or hold. During the “corona crash” we put out a number of pieces urging clients to keep calm and reminding them that we knew what to do. The weighty evidence of history backs up our belief that during a bear market, diversified investors will end up doing better buying than holding and that holding will be better than selling. When we look at accounts from 2020, that is exactly what we see.
A drop is not a time to panic and abandon a sound strategy, especially a strategy that expects bad times periodically. No, it is a time to rebalance and employ other tactics which fit that strategy.
People who cut their stock market holdings invariably tell us they watched a lot of news and were convinced that things would not get better any time soon. It was a reasonable interpretation. When the lockdowns started in March of last year, more than a few people were sure we were headed for a depression. The consensus in the medical community was a vaccine was two years away.
Nonetheless, we were confident that of the choice to buy, sell, or hold, selling was the least likely to work. At that juncture, it was not a smart move for a sound investment plan and likely never will be a smart move after a large market decline. The people who opted to reduce their stock holdings had to be right about short-term market behavior and act quickly. However, we did not see anyone do both correctly.
In the end, it didn’t matter if the crash was due to the pandemic or something else. Past bear market dramas have always ended the same way and should end the same way in every future bear market. Businesses are adaptable and will adjust to the circumstances, the aggregate value of businesses (not necessarily any one business) should be more valuable in the future, and market values should reflect that. It’s just math and common sense. Buy low. Sell high.
Your investment results will likely be dictated by how well you react to this noise more than how the market reacts to news related to these concerns.
When (not if) the next nasty market drop comes, the news will be troubling and the temptation to believe it (because things are “different this time”) will be great. In the meantime, even without a bad market, you will have plenty of opportunities to make shortsighted decisions. Whether it be the markets, the economy, tax code changes, political matters, inflation fears, rising interest rates, growth vs. value, or the value of the dollar, there is always something to worry about and always will be. Your investment results will likely be dictated by how well you react to this noise more than how the market reacts to news related to these concerns.
When that happens, we will do all we can to remind you that the overwhelming evidence of history favors the disciplined, patient investor and just how unhelpful the media has been at navigating the market turmoil. We can also assure you we will do what needs to be done on your behalf.
News & Notes
Tampa Area Taking Notice of New Office: As we announced in late 2020, we opened a new office in Tampa to meet rising demand for our services. The Tampa Bay Business Journal took notice and interviewed Mike Salmon, CFP® about the firm’s entrance in the area. There are many financial firms in Tampa, but our model stands out for its avoidance of the pervasive and problematic conflicts of interest in financial services. As Mike explained, “We charge a fee for service and advice, and there’s no sales or commission. [With the fee-only model], we are still the minority, but more people are aware of that and seeking out this advice. We believe we are on the front end of a change in our industry.”
Charlie Fitzgerald on radio show: On February 23, Charlie was the guest of Mike Gilland on the Christian radio program, “Afternoons with Mike.” The program airs weekday afternoons on 1270 AM, The Shepherd. The hour-long interview covered a number of topics and allowed Charlie to share how God has led him and carried him through life.
Mike and Tommy serve as experts for webinar: As a public service, the Winter Park Health Foundation hosted a webinar, “Taxes 101 – Why Your Taxes Shouldn’t Be Taxing On You.” Four panelists helped explain how to account for stimulus payments, PPP funds, and other quirks of 2020. They also provided tips on how to begin to think “tax savvy” and optimize a tax strategy. Two of the experts were Mike Salmon, CFP®, EA and Tommy Lucas, CFP®, EA from our firm.
Changes at DFA: Dimensional Fund Advisors will be converting a few of its traditional mutual funds into Exchange Traded Funds (ETFs). What does this mean for clients who own these funds? First, the conversion will not trigger a significant taxable event, nor will clients incur any costs for the conversions. Second, the ongoing fund expenses, already among the lowest in the fund universe, will drop by approximately one third. Lastly, the ETF structure should provide even more tax efficiency to the already highly tax efficient funds. The downside? Sometimes trading gets a little tricky but we’ve used ETFs and handled those quirks for years for clients.
Moisand Fitzgerald Tamayo, LLC is an Orlando, FL and Melbourne, FL based fee-only financial planner serving central Florida and clients across the country. Moisand Fitzgerald Tamayo, LLC specializes in providing objective financial planning, retirement planning, and investment management to help clients build, manage, grow, and protect their assets through all phases of one’s life and the many transitions in between.
If you have any questions or would like to discuss anything further, please give us a call or send us a note.
If you are not a client and wish to receive emails notifying you of new posts – no more than once per month – fill out the subscription information in the sidebar to the right.
Important Additional Information & Disclosures
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 (including the investments and/or investment strategies recommended or undertaken by Moisand Fitzgerald Tamayo, LLC-“MFT”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.
Due to various factors, including changing market conditions and/or applicable laws, 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 blog serves as the receipt of, or as a substitute for, personalized investment advice from MFT.
Please remember that if you are a MFT client, it remains your responsibility to advise MFT, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. 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. MFT is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. Tax advice is given only to clients and only when agreed to by MFT. A copy of the MFT’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request.
Please Note: MFT does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to MFT’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.
Please Note: Limitations: While MFT does NOT pay for recognition, awards, or publicity, neither rankings and/or recognition by unaffiliated rating services, publications, or other organizations, nor the achievement of any designation or certification, should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if MFT is engaged, or continues to be engaged, to provide investment advisory services. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Rankings are generally limited to participating advisers. No ranking or recognition should be construed as a current or past endorsement of MFT by any of its clients. ANY QUESTIONS: MFT’s Chief Compliance Officer remains available to address any questions regarding rankings and/or recognitions, including providing the criteria used for any reflected ranking.
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your MFT account holdings correspond directly to any comparative indices or categories. Please Also Note: (1) performance results do not reflect the impact of taxes; (2) comparative benchmarks/indices may be more or less volatile than your MFT accounts; and, (3) a description of each comparative benchmark/index is available upon request.