Investment Advisers Caution Patience in Turbulent Market


Investment Advisers Caution Patience in Turbulent Market
Ashley Palermo, managing director and director of products and services at Stephens Inc. in Little Rock (Jason Burt)

Investment advisers aren’t discounting investor distress caused by stocks’ current bear market, but they’re encouraging investors to keep their eyes on their long-term investment plans.

A good plan, with perhaps a tweak or two, can withstand any short-term pain because the stock market has historically recovered from every previous bear market, investment advisers interviewed by Arkansas Business said.

But experienced advisers also understand that market volatility can be scary for clients.

“A lot of them have never seen this before so they ask us, ‘Should we get out? Am I going to lose my money? Should I go to cash?’” said Ashley Palermo, managing director and director of products and services at Stephens Inc. in Little Rock. “We tell them you have a long-term time horizon. These are just blips in the market; they happen.”

As of Oct. 20, the Dow Jones Industrial Average was down nearly 17% since the beginning of the year. The S&P 500 was down nearly 23%, and the Nasdaq was down 32%. Adding to concerns caused by stock market declines has been the surge in inflation, which was up 8.2% in September.

“In an inflationary environment like this there are some changes, slight adjustments that clients may want to make,” said Chris Henry, managing director of trust and wealth for Bank OZK in Little Rock. “What you don’t want to do is throw the baby out with the bathwater every time the economic or political environment changes. It helps folks to have a plan that weathers all seasons. If you have to change your plan, you don’t really have a plan at that point.”

Don’t Jump Off the Boat

Palermo said she would give different investment advice to a 30-year-old just beginning his or her investment portfolio than she would to a 60-year-old nearing retirement.

But even within the same age demographics, there are countless variables. Any two people the same age have different goals, different salaries, different family commitments and so on.

The most important factor in any investment plan is to have a clear goal at the start and then diversify the assets to help navigate the downturns. Advisers said making minor adjustments — funneling a bit more money into a specific sector of stocks or switching to more fixed-income securities — is usually all that needs to be done in bear markets.

Henry said the stock market is like a boat that encounters rough seas. You may trim the sails and batten down the hatches because of the wind and waves, but you don’t jump off the boat.

“If we can hunker down and trim around the edges, we will have a good outcome,” Henry said. “Now is not the time to jump off the boat. If you are invested, it is wise to stick with the long-term plan and not panic.”

That’s easier said by an investment adviser than done by a client, of course. Part of any adviser’s job is customer care, holding a nervous hand and reassuring clients that the plan is solid and everything will be OK.

“The biggest issue right now for the average investor is going to be managing their emotions when all of the news is bad and they experience portfolio losses,” said Clay Nickel, chief investment officer for Arvest Wealth Management in Kansas City, Kansas. “The best remedy we have for that is to remember time frames. Even someone who is retiring today probably has another couple of decades that their investments will be in play.”

Palermo said it is important for advisers to know their client’s risk tolerance, again something that varies throughout every age and financial demographic. It’s also something that will have been considered before the investment portfolio was created. A risk-averse investor probably shouldn’t be exposed to a lot of stocks that fluctuate wildly in price.

“That’s part of what we have to do [is ask] how much risk is each client willing to take,” Palermo said. “We have to look at risk in two parts. How much can you emotionally handle? Not just how much emotionally can you take, but how much risk can the client financially take?”

Look for Opportunity

Legendary investor Warren Buffett famously called on investors to be “fearful when others are greedy, and greedy when others are fearful.” So though every market drop can be nerve-wracking, it can also provide an opportunity.

“When everything is scary and there is blood in the street, that is when the market is down and there is an opportunity to buy,” Henry said. “People feel queasy doing that. The market is on sale right now. If your favorite shoes or golf clubs are on sale for 33% off, a lot of people would be racing to the store to buy. It is a shame because it is the same thing with the stock market, and a lot of people don’t view it that way.”

One of the cardinal sins of investing is trying to time the market — that is, getting out before the market drops and then hopping back in just before it rebounds. That is almost always a pipe dream, advisers said. “The whole point is to invest in good companies, diversify and stay in the market,” Palermo said. “Nobody ever wins trying to time the market. If they do, I want your crystal ball.”

Bear markets can be painful for senior investors who are looking for their portfolio to provide income rather than growth in retirement. But that’s an adjustment that should be pre-set in the portfolio and not made as a reaction to economic times.

“Once these things hit the news media, typically they are already priced in,” Nickel said. “Much of the investment market is going to be anticipatory. Professional investors have been reading these tea leaves, or attempting to, in this difficult environment and have already started to implement portfolio changes.

“If anything it may be wiser for the investor to take a contrarian view. If all the news is bad, look to see how I can take advantage of the rebound.”