Client questions

Client Question of The Month: What Should We Do?

  • Should we get out of the market?
  • Should we invest more money?
  • How can we take advantage of current tax rates?

There is a fine line when it comes to doing something vs. nothing.  The response “stay the course” lacks conviction if your trusted resource performs little research over market conditions or the tax landscape. Instead, it’s about understanding the market forces and relating them to the impact on YOUR plan. If the message remains the same, then you have greater comfort knowing that doing nothing is exactly the right thing to do.

Thought of another way: How do you quantify the cost of inaction vs. action?  This reminds us of a post earlier this year: Don’t be upset about the unicorns you missed out on. Be happy about the monsters you avoided.

What does it cost if you:

  • Get out of the market during a pullback, but don’t get back in right away?
  • Delay establishing a systematic investment program?
  • Fail to plan altogether?

Here are some items we recommend doing:

  • Build your plan
    • Revisit it at least annually – even if only for 30 minutes!
  • Perform tax-loss harvesting
  • Consider Roth IRA conversions (at least while they’re still permitted!)
    • Is your income down this year or projected to increase in the future? Then there may be an opportunity to convert funds from your IRA to a Roth IRA.
  • Review your life insurance
    • Sleep in peace, knowing you’ve addressed your insurance needs.

Here are some items we don’t recommend doing:

  • Time the market
    • You have to be right TWO TIMES: when to GET OUT and BACK IN.
  • Let head trash win
    • In Daniel Crosby’s book, The Laws of Wealth, he notes that your brain actually stops thinking when you listen to the “financial experts” on the news, making it easy to digest what they say as the absolute truth.

Consider this approach as outlined by Crosby:

Think. Ask. Do.

  • Worry less about the economy and more about your economy.
  • Does the news matter to you and your situation?
  • Bucket your assets according to your goals.

To conclude, we think it’s worth quoting a DFA article we read recently, which is one the portfolio managers utilized in our investment models. The message here is that we’re bound to hit bumps (or potholes here in Michigan) in the road but don’t let that deter you from recalibrating your plan.

“The snowiest month in Vail is February. There are typically 4.5 snowy days per week with an average of 10.6 inches of snowfall every week. If you were to visit Vail during February and there was no snowfall, would you start to question if February is the best month to visit Vail if you’re looking for fresh snow? Or would you chalk it up as an outlier event?

History has shown February is the snowiest month in Vail. However, there will be times when you visit Vail in February and don’t get any snow. Just like when pursuing premiums, history has shown that small caps outperform large caps, value stocks outperform growth stocks, and high profitable stocks outperform low profitable stocks. Does this happen over every time period? No, realized returns are volatile, but the longer you stay invested, the greater the chance of capturing the premiums and having a successful investment experience.”

If you have a question for us or need help establishing, or revisiting your plan, feel free to connect with us.