Do I Have What it Takes?

I recently read an article in a professional magazine about an advisor's work helping his clients transition into retirement. I found the story included within the article (posted below) to be very insightful and wanted to share his take away and my own.

I recently heard about this young man who started working for his father at a young age. During that time, one of the main staff members was a custodian who had a ring full of keys to access the different work areas and offices.

 The young man went off to college and returned to an official role in his dad’s business. But when he started, he was disappointed that his dad didn’t trust him yet and that he would have to do more and be more to get full access.

For years, he asked the custodian to open various areas for things he needed to complete projects, fulfill customer orders and help manage employees. The one day, he needed immediate access to a room, but the custodian and his dad were not around, and they would not be back anytime soon. He was desperate and did not know what to do, so he reached for his key and was surprised to learn that he was not just given a single key for his office but the master key to the entire building.

The moral of the story for the other advisors’ clients is simple: They already have everything they need to be successful in retirement. They just need to be encouraged to insert the master key and open up the different areas of their life and skills - and put them to work in new ways.

The moral of the story to me is also simple: We all have been given the Master Key to greatness. Do we know it? Do we believe it? We also need to be encouraged to use our Master Key to accomplish all we desire in life.

Market Volatility – what is normal anyway?

With all the market volatility over the past few months, it is hard to remember that, before mid-February, the stock market had been on a historic run. The conversations I was having with people for the six weeks before the market downturn were much different than those I’ve had in the most recent six weeks. I am reminded that, without a proper perspective, it is natural and normal to respond to these events emotionally. How we manage these emotions can be vital to experiencing a better or worse outcome.

The perspective by which we consider the stock market should be both historical and forward-looking.

Below is a chart showing some historical returns for the past 30 years. The purpose of this chart is to show the market return for each calendar year going back to 1979.  The thin green line moving towards the top of the image shows the largest % gain for the year. The thin red line moving towards the bottom of the image shows the largest % decrease. The thick highlight shows the year’s final % return. Using this chart, we can compare each year to gain some historical perspective on market volatility. Note the extreme volatility in 1987. Despite the huge up and down movement, the year ended basically neutral, with only a slight gain. Another note to consider is 34 of the 41 years reviewed had positive returns despite every year showing negative returns at some point during the year.

When considering a forward-looking perspective, none of us have a crystal ball to know when the market will move or in what direction, but there are some key questions to consider. What is the purpose of the money I have invested? And just as importantly, when will I need the money? By helping to identify answers to these questions, Financial Planning can help provide greater clarity on how to manage risks and investment choices.

Below is an image taken from MoneyGuidePro, which is the Financial Planning software program our office utilizes. This image shows the probability of success for a fictitious client. The success rate is generated based on a person's current goals, investments, and savings rates using random rates of return.

This software is key to providing a forward-looking perspective. When used with clients, this tool can bring greater clarity to the overall situation. If events going on in the market have caused the probability of success score to drop significantly, then it may be time to discuss what changes could be made. But if the current events create little to no change in the probability of success score, then there may not be a need for any changes.

What's the takeaway? When we understand where it is that we are going, and historically what has happened, it allows clarity and confidence in our decisions. When we don’t have a bigger perspective, many of us react to our emotions, leading to less than successful outcomes.

Is the Market an Escalator or an Elevator?

On January 27th, Vanguard, one of the largest and most well-respected investment firms in the country posted an article about the possibility of a market downturn. It was written for advisors as its direct audience. The article included great information to share with our clients when a market downturn occurred. Because the stock market has had one of the longest positive runs in its history, seeing articles like this were not uncommon at the time.

On January 2, 2020, the Dow Jones opened the new year at $28,638.97 and continued its dramatic growth when it hit an intra-day high of $29,373.02 on January 17. The gain was just over $700. On January 27, when the article was posted, the Dow closed at $28,535.80. This was an $800 drop in just five trading days. But over the next two weeks, the market grew back to an even higher point than mid-January. On February 13, the market hit another intra-day high of $29.535.40. Since then, it has been a very different story. As of the close of trading Friday, February 28, the Dow closed at $25.409.36. That is a drop of $4,126 in 10 trading days, which equates to roughly 14%!

Unless you have missed the daily news the Coronavirus, has now spread to the U.S., and caused the stock market to go on an elevator ride almost straight downward. For many, this has caused fear because it has been very hard and fast.

Without surprise, I have had a handful of calls, emails, and texts with a range of emotions on what, if any, changes should be made as a result of the recent events. 

To keep things in perspective, I have included some facts to consider:

During a rapid decrease in the market, I agree that it can be very hard not to have some strong emotions. But I believe that when we understand the changes in a broader context, it may help us respond differently. Some may remember the decline in the stock market, the last quarter of 2018.

On October 1, 2018, the Dow Jones opened the day at $26,598.36. By December 24, 2018, the market had bottomed to $21,792.20. That was a drop of $4,806. This was about an 18% pullback. Do those numbers look close to the numbers from the last two weeks? Ironically, it is almost $700 larger, and about 4% larger. But, unlike an escalator that takes a little longer to get where it is going, an elevator only knows straight up and straight down. When it comes down fast, we feel it much differently.

From December 24, 2018, through December 31, 2019, the Dow Jones grew from $21,792.20 to $28,868.80. This was roughly a 32% increase in just over 12 months! Although we would have loved this to continue without interruption, history tells us it was bound to change.

The data I have shared so far would be considered short-term. The stock market can be and is VERY volatile in the short-term. When we take a step back and understand what our goals are long-term and knowing that the market traditionally grows over the long term, I will share a few final numbers for consideration.

On March 9, 2009, the Dow Jones hit its lowest point during the Great Recession. I too can still vividly remember becoming very scared at this time, as the stock market continued to drop and drop. On that day, the Dow Jones was at $6,547. Between October 11, 2007, and March 9, 2009, the stock market had had its biggest drop since the 1930s! Since that time, those investors that have kept their long-term focus stayed in the market, and continued to invest regularly have been immensely rewarded.

When we were in the midst of the Great Recession, I heard many stories about people who became too scared and sold all their investments for fear of losing more and more of their hard-earned savings. They justified their actions by saying they would wait for the market to settle down. Sadly, many of these same people never invested again.

When we watch what the market is doing on a day to day basis (short-term view), I don't believe it ever settles down. There is just TOO much noise. When we look over the longer term, it is dramatically quieter.

Moving forward, I cannot tell you when the market will find its footing. We may still have even more downward movement. We may not. But what I do know, is that those who are focused on the long-term goal who have over 8 to 10 + years, and are still accumulating for retirement, we were all just handed an opportunity to invest at prices 14% lower than before.

How should we define Customer Service

You may call me old-fashioned, but I still hope for great customer service whenever I interact with the businesses I patron. Yet, in today's day and age, customer service seems to be status quo. I am curious to know if others feel the same. Should we as consumers ask for, want, and expect excellent customer service?

Let me share a brief story where I recently had an experience where I received the type of extraordinary customer service we can only hope for and was treated as more than simply a paying customer.

From early in my marriage, I have owned a nice set of Hartman tweed suitcases. At the time I got them over twenty years ago, they were a top brand of luggage. Sadly, Hartman has been bought out by Samsonite, leading to much lower quality and service. After many years and many trips, the wear and tear hit a breaking point. Multiple zipper pulls on my luggage had completely broken off, making opening and closing my suitcases very difficult. It was pretty much impossible to find new replacement parts. As a last resort, I took it into Fink’s luggage (www.finksluggage.com) in downtown Portland where they were able to find used zipper pulls from previously owned suitcases. Because I live in Wilsonville (20 miles south of Portland), their location is quite inconvenient. Navigating downtown, trying to find close parking, and going in to pick up and drop off my luggage was quite a hassle. When I went to pick up the repaired suitcase a week or so after dropping it off, I had the exact same issue of finding a place to park and go in. On top of it all, I was in a huge time crunch. After making multiple trips around the block near their store, I could not find parking anywhere. I gave Fink's luggage a call to explain my situation. The employee who answered the phone immediately ran outside to my car with the fixed suitcase and placed it in the backseat of my car. In return, I gave him my credit card and headed around the block another time to avoid blocking traffic. After circling and returning to the storefront one last time, the employee was already outside, ready to return my credit card and receipt.

This type of customer service was totally not his responsibility, but he went out of his way to exceed my expectations and accommodate my inconvenience.

Because of this experience, I have to ask: am I providing customer service to that extent with Encompass Financial Planning? What do you want and expect from our firm? What can we be doing to go above and beyond to meet the needs of those we serve?

What’s the point of money if we don’t get to enjoy it?

Recently I went on a date with one of my teenage sons to get a treat at a local food court. We spent $15 and a few hours together, and it was quite enjoyable. Although the financial commitment of our time together was relatively small, it got me thinking about the bigger picture of how this applies to why I save and how I spend? And, just as importantly, how do these questions and answers relate to long-term retirement planning?

Why do we save our money? At times we find ourselves so focused on saving for the future, saving up for what's coming next we forget to enjoy the small and simple pleasures of life right now. Money is for our fulfillment, and we are meant to enjoy life both now and in the future. Keep in mind I am not justifying spending everything now and forgetting about retirement. I am talking about being prepared for retirement in conjunction with enjoying our resources now.

In thinking about the date with my son, the opportunity to try something new and the hours we spent together made that a memorable and uplifting experience. It's moments like these that remind me that we make money to enjoy experiences in life.

What do you enjoy in life? Where do you find fulfillment? Is it a $15 date with a child or grandchild, or is it something more? We should be using our money to find that enjoyment and fulfillment. That doesn’t mean carelessly throwing our money at anything that catches our attention. Instead, it means using and saving our money with the intent of finding enjoyment in life.