personal finance

View from the Chair: Windermere's Market Perspectives (November 2019)

Here we are again…after months of volatility and discussion of an impending recession, many markets have once again reached all-time highs. Such a sharp turn upward to asset prices in 2019 has many once again asking, “what now?”

Here are a few things we are keeping in mind as we serve our clients in this exciting time :

1.) Monitor concentrations - in times of market accelerations, certain positions can become oversized in relation to others. Of course, there are many accompanying factors to consider as well before trimming a position (including outlook for business, unrealized tax position, and opportunities for reinvestment to name a few). However, we are always looking for concentrations and trimming winners as appropriate

2.) Rebalance - this is a commonly referenced strategy - likely because it has been proven to work over time. Rebalancing is the act of selling and buying within asset classes to return you to your longer term target allocation. This has the effect of forcing you to sell high (by trimming asset classes that have gone up and are now over target) and buying low (adding those funds to asset classes that are under target). This process can remove emotion from the equation and make it easier to adhere to your longer-term plan

3.) Revisit your financial plan - even though markets are reaching all-time highs, it is also no secret that expected returns over the next several years will fall short of those in recent past. Why? Simply put - slower growth around the globe. This leads to lower interest rates and in turn, lower returns on all asset classes. It’s a good idea to revisit your longer term plan at least once a year and determine what rate of return you need on your investments - and whether your current asset mix can achieve that

4.) Hunt for bargains - in an upward slopping market, it can sometimes feel as if everything is overpriced. This just isn’t the case. We are always on the look out for investments that are trading below our estimate of fair value. Even in an up market, bargains may appear!

5.) Stay engaged - It can be easy to relax a bit as markets reach all-time highs. We can congratulate ourselves for staying in during some pretty unnerving periods (remember Christmas Eve 2018?) and enjoy watching our balances climb. Resist this urge. Now more than ever is a great opportunity to stay engaged and active with your portfolios. Markets never stop- and neither can we.

Invest on,


View from the Chair: Windermere's Market Perspectives (October 2019)

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2019 has not been the easiest year to be an investor. It seems we take a few steps forward, only to be forced to then take a step back. The year starts strong, only to pull back a bit in recent months. The consumer continues to show great signs of strength, only to be dampened by manufacturing data. The trade talks looks positive, until a news report tells us otherwise. One step forward, one step back, one step forward, one step back. It can all get a bit tiresome.

I get it. It can be really hard to stay committed to your investing plan when markets (or the country or the entire world) seem to be stuck in neutral. So what’s an investor to do? Much like the rhythm of 2019, I think the best thing we can all do is take one big step back and focus on the following five items:

1.) Level set expectations

Most humans suffer from a recency bias, meaning that things that have happened to us in the recent past have a higher likelihood of re-occurrence in our minds that may actually be the case. A classic example in investing is expected returns. Take US equities for example. From 2009- 2018, on average, S&P 500 has returned 13.6% per year. We may very well expect those returns to repeat. We forget that such returns were coming off a low starting point post-financial crisis and were aided by extreme monetary policy. We need to level set our expectations from where we are today. Financial assets price off of interest rates. In a world where the risk free rate (commonly accepted as the 10-year US treasury rate) is just above 1.5% (as of October 8, 2019), equities are trading near historical norms in terms of valuations, and growth in the US economy seems to have leveled off at ~2-3%, our expectations of returns across asset classes (including US equities) for the next decade need to be tamed.

2.) Revisit your goals

I know what your’re thinking - “everyone gives this generic advice.” Perhaps you’re right - but I’d argue that it’s for a good reason - because it’s sound advice! Take a step back and do the hard work to determine what rate of return do you actually need to achieve to meet your goals. Given your earnings trajectory, savings, spending, and plans for your life, what return do you need to earn on your invested capital? This answer will be different for each and everyone of us. But without taking that step back and doing some analysis, you could either be worrying about meeting a return that you don’t need to meet - or be chasing an unreasonable return that still isn’t enough without other accompanying changes (such as working longer or spending less). The sooner you know where you’re trying to go and understand the reasonable realm of returns to get you there (see #1), the better.

3.) Check in with your emotions

None of us like to “lose” money. It’s just how we are wired. Once we hit a high water mark on our investment statements or our net worth statement, we certainly don’t want to fall back below it. Unfortunately, asset prices don’t just move in one direction and are almost never directly linear. When values fall, take a step back and consider why it is bothering you. Is it a simply a wealth effect, meaning you feel bad because the number is lower but not because your life has to change in any way because of it? Or, is there an actual impact due to your invested assets declining in value (such as an inability to pay your bills, retain your housing, support your lifestyle, etc). As we’ve said before and will say again, we highly suggest having 3-5 years of needed liquidity in cash, cash equivalents, or very short term fixed income (in additional to day to day cash and emergency savings). Why? Because if risk assets decline in value, we don’t want you having to withdraw on them during a downturn. And, if you know your life won’t be impacted by declines, they likely won’t bother you as much. Having this set-up allows you to take a step back, acknowledge the discomfort of the wealth effect, but then go about your day knowing your liquidity needs are met for the foreseeable future

4.) Widen your lens

Investing technology has come a long way. We used to have to wait for monthly statements to see the change in value. Now, we can watch the green or red figures and percentages second by second on our phones. Focusing on a day’s change (or even a year’s change) is a little short-sighted. Odds are you have been investing for years, if not decades. Take a step back and widen out your lens. How have you done in the past 5 years? The past 10 years? Since you started? My guess is that you have built wealth thru your investing efforts over time and have likely not “lost money”

5.) Look around you

Financial management is a team sport. I’d suggest taking a step back and looking around you. Who do you see? Do you have a spouse, parent, or friend that you can talk to about financial worries or concerns? Do you have a financial advisor that can help you set-up a plan and understand required rates of return? Do you have access to sound legal and tax advice when needed? Are you using these people and turning to them when you have questions or when fears pop into your mind? Don’t try to go it alone. Invest in your financial journey and your financial teammates whenever possible.

Sometimes it’s necessary to take a step back in order to take a step forward. Give it a try, let me know what you think

Invest on,