Riding the Waves Even When Markets Get Turbulent

It has been some time since Cathy and I have taken an extended vacation. Much of this had to do with COVID travel restrictions and my overall busy schedule. With all that said, we planned a cruise about six months ago and flew out the end of July. Only about four days had passed when two “new friends” from Tennessee were discussing the recent volatility of their stock portfolios before going to dinner. Having shared with them my profession earlier, they of course asked me what I thought. I politely smiled and shared that I had decided to turn off the business news this week and was not aware of their concerns. They understood and returned to checking their phones.

Seeing their anxiety, I could only wonder if once again I had planned a trip during unusual market activity. If you have read my blogs in the past, you will know that my vacations seem to occur during extreme market volatility. A few examples are:

• A vacation in 2000. You may remember that low interest rates in 1998–99 facilitated an increase in start-up companies. In 2000, the dot-com bubble burst, and many dot-com startups went out of business after burning through their venture capital and failing to become profitable.
• A Colorado trip was planned in 2008 during negotiations as to which bank would bail out the feared bankrupt Bear Stearns before it went under. You may recall that JPMorgan agreed to buy Bear Stearns for a mere $2.00 a share, under pressure from the U.S. government, sending shockwaves through Wall Street after Bear Stearn’s massive exposure to subprime mortgages saw $17 billion drain from the bank in a matter of days.
• Then there was the popular blog written in 2020 on the way home from a family ski trip to Montana. A global economic shutdown was occurring due to the pandemic, and panic buying and supply disruptions exacerbated a volatile market.

Today I am flying back to Virginia and catching up on the news when I read that on the previous Monday, August 5, 2024, the Dow Jones Industrial Average lost 1,033.99 points or 2.60%. This was the largest point and percentage decline since September 13, 2022 according to Dow Jones Market Data. If only I had a crystal ball and could foresee the future and plan my family vacations accordingly.

The good news is that prior to my trip, our TFG Investment Committee decided to trim some of our equity positions. This was not because we had used some Magic 8 Ball like the one a joking client had given me many years back. We determined a trim was simply sound financial planning to fund in advance our clients’ cash needs for spending through 2025. The parking place was a money market fund yielding more than 5%. For those clients without cash needs, we added to fixed income positions aware that the Federal Reserve will most likely be lowering interest rates soon, thereby extending duration on some of our positions which may prove beneficial over time.

If I had more time to spend with my new friends from Tennessee, I would have encouraged them to put down their mobile devices and enjoy their vacation. When it comes to being a successful investor, we must all learn to remove emotion from the investment process. This is something that I am still learning even after 35 years as a financial planner. To be successful when it comes to investing, it is important to set your allocation of stocks and bonds before unexpected events occur. Then remember to stick to your plan during times of market volatility.

As shared in my March 2020 blog, “Not Our First Rodeo,” setting asset allocation and then staying the course is especially true for those investors who are retired and drawing from their investment portfolio each month to meet expenses. Determine your appropriate risk level — or as I sometimes say, your “sleep level” — in advance. You want to avoid having to sell at an inopportune time. Follow this by setting aside 12-18 months of future spending needs in an interest-yielding cash account.

While I am unable to plan vacations around significant events that result in stock market volatility, as a Certified Financial Planner® professional, one thing I can plan for is continued economic uncertainty. TFG’s financial planning process will continue to follow Federal Reserve policy, reviewing data points like the change in inflation and unemployment, and most importantly right now, any evidence of a slowing U.S. economy in the months and weeks ahead.

If you are concerned with recent market volatility and desire a review of your long-term financial plan, our team welcomes the opportunity to speak with you. Contact Tull Financial Group at 757.436.1122 today. By doing so, you can then turn off the news during your next vacation and enjoy your time away to the fullest.