KEEPING YOUR EYE ON THE BIG PICTURE

Regularly, I receive articles from some of the investment companies I work with about different aspects of the stock market. Recently there was a post that made me stop and re-review the information because it hit close to home because of frequent conversations I have had with clients this year.

The U.S. stock market has had two steep declines this year that caught many investors off guard. The first was April 1 through April 19 when the stock market dropped close to 6%. The second was just a few months ago, from July 16 through August 5 when stocks fell roughly 8.5%. When there are sharp declines in the market and the daily headlines remind us to focus on these events, what gets missed is how well the U.S. market has performed for the entire year. Through the end of September, the S&P 500 was up close to 21%. This is much higher than the index’s average yearly return of 10.26% since 1957.

While the stock market volatility can be daunting, it also presents unique opportunities for those willing to look beyond the current noise. An important factor to consider is not overreacting during sharp market declines as it could be a momentary hiccup, in an otherwise upward direction. The Russell 300 had an intra-year decline of at least 10% in 25 out of 45 years since 1979. Of those 25 years, 17 of those years, the index ended higher for the year.

Navigating market volatility can be challenging. The stock market will always have ups and downs. How you respond can make all the difference in the long run. 

Should I Stay or Should I Go?

With all the crazy movement in the markets over the last few weeks, I am posting a great article written recently by Dan Caplinger.

The Best Argument for Long-Term Investing in Turbulent Markets

Anyone can look at the performance of the stock market over the past 100 years and understand how powerful long-term investing can be. Amid all the ups and downs along the way, the value of stocks has consistently gone up, building wealth for those who've had a disciplined approach.

Actual investing isn't always that easy. It's one thing to understand in your brain that a strong recovery has followed every big drop in the past. It's a completely different thing to have the conviction in your heart that the current downturn will eventually follow the same path to recovery.

Missing the Best Market Days Will Cost You

Many investment professionals use a simple argument to urge clients to follow a long-term investing approach. This argument points at the cost of missing out on the best days of stock market performance. 

One study from the asset management arm of JPMorgan Chase noted that the S&P 500 returned an average of 9.2% per year for the 20-year period ending December 2021. That's consistent with the longer-term average return for stocks. However, if you took out just the 10 best days in that 20-year period, your total return would've fallen by nearly half. Miss the 30 best days, and nearly all of your positive returns would disappear.

This concept holds true for even longer periods of time. A different study from Bank of America looked all the way back to the 1930s. In each decade since then, missing the 10 best days in the 10-year period cost investors a huge amount of return. In the 1940s and 1970s, it turned a healthy positive return into a substantial negative one.

Why This Trap Snares So Many Investors

When I first saw those studies, I immediately wondered what would happen if you missed the 10 worst days in the market. Predictably, returns went way up. The Bank of America study actually looked at missing both the best and the worst 10 days, and those total returns tended to be slightly higher than the actual return of the market throughout the period. 

But here's the problem: Human nature doesn't work in your favor with market timing. Most people never think of selling their stocks when prices are going up. With the positive reinforcement of rising portfolio values, it's easy to be a long-term investor. 

It's only when the market has already dropped that most people think about adopting timing. The danger there is that all too often, the best days in the market come on the heels of the worst days. Consider some great examples:

• The stock market crash of 1987 saw the Dow drop 508 points to 1,739, or 23%. However, just two days later, the Dow jumped more than 10%, completing a two-day rise that recovered more than half of that lost amount. If you'd sold on Monday, you suffered the loss but missed the gain.

• The financial crisis of 2008 included a couple instances of this phenomenon. An Oct. 9 drop of 679 points came just before a rebound of 936 points on Oct. 13. Another drop of 733 points on Oct. 15 got more than reversed by the Oct. 28 gain of 889 points.

• Most recently, the pandemic-induced bear market of March 2020 saw several wild swings. The March 9 drop of 2,014 points preceded a March 10 gain of 1,167 points. The Dow answered the following March 12 drop of 2,353 points with a March 13 recovery of 1,985 points. Lastly, the 2,997-point decline on March 16 didn't produce an immediate bounce, but those who sold out missed the March 24 2,113-point rebound.

Notice that in many of these cases, the rebound didn't immediately claw back all the lost ground from the decline. Nevertheless, without the discipline to stay invested, you suffered the losses without the gains.

Better Days Will Come

Nor should you assume that the bounce will come days or even weeks after a decline. Some bear markets have taken years to play out. That's especially painful, and it puts even the most seasoned investors to the test.

However, the most difficult lessons are those in which you get a quick reminder of why panicking was the wrong move. The best way not to miss the best days in the market is not to let the bad days scare you out. That's easier said than done, but it's crucial to your long-term success in investing.

I'm tired of people calling me cheap

I recently read a research paper around tightwads and spendthrifts, tightwads being those who only save money because it pains them to spend, and spendthrifts irresponsibly spending their money. This research paper talked about the difference between spenders and savers and the emotions that drive these behaviors. Do these behaviors relate to the pain or the pleasure in spending money? I resonated with this because of my own behaviors in spending money. Because of my experiences in life growing up with a big family, I find myself in the boat of tightwad behavior. My entire life, I've been called cheap. The definition of cheap is someone who doesn't like to spend money, especially in situations when they can and should. What then is the difference between being cheap and being frugal? To me, being frugal means making better use of my resources and, in turn, making me feel good about how I spend my money. So, instead of calling me cheap, shouldn't you call me frugal? Or better yet, Frugal Dougall? Where do you feel you lie on the spectrum of cheap vs. frugal?

TradePMR Success

As an independent RIA that has chosen to work with TradePMR, we at Encompass Financial Planning are proud to share the great news. Below is an article that was recently written regarding the technology and services that are available to our firm and the clients we serve. We couldn’t be more proud.

TradePMR Earns Highest Satisfaction Score for a Custodial Platform in 2021 T3/Inside Information Advisor Software Survey

GAINESVILLE, Fla., March 23, 2021 /PRNewswire/ -- TradePMR, a technology, and custodial services provider for RIAs, received the highest average advisor satisfaction rating from more than 5,200 financial advisors for its Fusion platform. This recognition, which asks advisors to compare all the top custodial services providers' trading platforms, was included in the T3/Inside Information Advisor Software Survey1. The annual survey, distributed and analyzed by industry veterans Joel Bruckenstein and Bob Veres, was released this week following an online survey collection in the second half of 2020.

The Fusion platform received an average rating of 8.65 out of 10. This rating was up from 7.40 in 2020. 8.65 marks the highest recorded satisfaction rating among all providers in the Custodial Platforms category since it was introduced in the survey in 2018, topping the highest historical ratings of 8.12 in 20182, 8.31 in 20193 (secured by TradePMR), and 8.57 in 20204. Additionally, TradePMR received an average score of 8.40 in the Online Portfolio Management category in the 2021 report, placing it among the top four providers in that category.

"We are both thrilled and humbled by this incredibly positive feedback from advisors who use our technology and resources," said Robb Baldwin, founder, and CEO of TradePMR. "Every day, we are singularly focused on delivering the best custodial services to RIAs, and to me, these results are proof that we are hitting the mark."

Throughout the pandemic, the TradePMR team has worked hard to ensure that all advisors using TradePMR's services can do so seamlessly from wherever they are working. To help bolster this support and to further streamline workflows, TradePMR enhanced its digital account opening tools for RIAs with the ability to open, reserve account numbers, and populate multiple types of accounts. The firm also expanded trading capabilities by adding tools for advisors to build model strategies with real-time asset class allocation and hedging strategies at the portfolio level.

"RIAs should take note - TradePMR has built one of the better RIA custodial platforms," said Joel Bruckenstein, founder of T3 Technology Tools for Today. "Real estate on an advisor's desktop is in high demand – Fusion deserves the space. This year's survey results should serve as a reference point to any advisor seeking a new custodial platform that Fusion and TradePMR should be on your list when considering making a switch."

For more information on TradePMR, visit www.tradepmr.com. For the complete survey results, see www.t3technologyhub.com.

About TradePMR
For more than two decades, TradePMR has worked with growth-minded independent registered investment advisors (RIAs), providing innovative technology tools and support designed to transform their businesses. The privately-held brokerage and custodian services provider (Member FINRA/SIPC), based in Gainesville, Fla., works to streamline fee-only investment advisors' operations through comprehensive custodial, operational, and trading support. For more information, visit www.TradePMR.com.

Think Investing Is a Game? Stop

When I think of my role as an Investment Advisor Representative and Fiduciary, I view the duty of managing client money with a great deal of responsibility. There is a unique balance between managing risk, as well as capturing growth opportunities in the market. With the recent news of the company GameStop and everyone trying to get in on the trading, I found the article from David Booth at Dimensional Fund Advisors to be similar to how I think prospective investors should consider these types of events.

February 11, 2021

By David Booth - Executive Chairman and Founder

It’s easy to view the stories of market speculation that have dominated the news recently as cautionary tales for individual investors. But we can also look at the current moment as an opportunity to welcome a new group of investors to the market: those who have been drawn in by all the high-stakes action, and yet may want a consistent, long-term investment solution that doesn’t keep them up at night. This is probably a good time to mention that investing and gambling are not the same thing.

If you’re not the type of person who feels comfortable betting your life savings on a long shot, the good news is that you don’t have to find the next big stock to win in the stock market. Concentrating your whole investment on one or two companies means the stakes are high enough to expose you to unnecessary risk. Even if you manage to land a few big winners, our research has found that good luck is unlikely to repeat throughout a lifetime of investing. For every individual who got in and out of a hot stock at the right time, there’s another who bought or sold at the wrong time. If you treat the market like a casino, not only do you have to pick the right stock, but also the right moment.

I’ve always believed you’re better off betting with the whole market than on individual stocks, through a low-cost, highly diversified portfolio. Then let time and compounding do their work. Compounding is the investor’s best friend: if an investment grows at a rate of 10% a year, that means a dollar invested has doubled every seven years.1 As a point of reference, the S&P 500 has grown at rate of 10.26% since 1926, though it’s worth noting that the path is rarely smooth.

With all the options now available to investors, putting together a solid investment plan—one that you can stick with—is key. Markets have never been so accessible, and information has never been so widely available. And despite the fact that stories of stock-market gambling keep making the news, many investors have managed to enjoy growth in their investments using low-cost, highly diversified strategies like index funds.

Indexing has turned out to be a good solution for many people. I was involved in the creation of one of the first index funds early in my career, and I’ve enjoyed watching the positive impact indexing has had on the industry. For those who want more customization and flexibility, there are ways to build on the strengths of indexing while correcting for some of its weaknesses. At Dimensional, we’ve been working on improving upon indexing for the past 40 years.

If you’re looking to become a long-term investor, commit to a long-term strategy that takes your own personal goals, situation, and risk tolerance into account. (A financial advisor can help with this part.) And remember that although the US stock market has returned about 10% a year on average, returns for individual companies and individual years can vary wildly. (We call these uneven distributions “fat tails.”) It’s always important to look at the big picture. A huge win on a stock bet today doesn’t mean much if you lose it tomorrow.

Investing is a lifelong journey. Making money slowly is much better than making—then losing—money quickly.