A Storm-Ready Financial Planning Strategy
A reflection by Wayne Wagner Jr., ChFC
With the stock market down 25 to 35%, I thought it might be time to reach out and hold some hands. As your financial planner, I can tell you that even the low valleys aren't all that unexpected. Unenjoyable, yes. Shockingly unexpected, no. And I believe you'll find your financial plan reflects that.
As a group, I want to tell you how so incredibly proud I am of you. I talk to financial advisors every week who are asking “what are you doing about all the clients that are calling in a panic?” I'm telling you, we have not had a single client call in a panic.
We've had a couple of emails, "Hey, is everything okay?" I've had half a dozen emails asking how I'm doing and is this stressing me out? I'll tell you why I'm smiling in a few minutes. Here's the bottom line.
Where are we in the market cycle?
We have planned, within the diversification of your portfolio, for times and seasons just like this. We are not in a crisis with the stock market. The reality is this is normalized volatility, it just feels worse because we're in a 24-hour news cycle. Now, here's the good news. I'm going to throw a couple of data points at you.
The average recession lasts for 11 months.
During a recession, the stock market usually bottoms out about four months before the end of the recession. If we are in a recession, the second quarter of this year would be the second quarter of the recession. By the data, the recession started around January of 2022, if we're in a recession.
We can't properly define it yet because technically it's two negative quarters of GDP, but if we were in a recession, the average recession lasts about 11 months. As a ballpark forecast, that would place us about halfway or more through that recession right now. It's no guarantee, but history gives us reason to look up.
How We Have Planned for This Season
Diversifying Sufficiently
Now, I'm not calling a bottom. I'm not saying this is an average recession. It might be a longer one. Who knows? The stock market might go down more.
Here's what I want you to hear. If you're a Vizionary client, your portfolio is diversified. And in 2022, diversification is back. It works.
Future Ready Portfolios
We intentionally put cash, floating rate bonds, fixed index annuities, and other forms of defensive measures within a portfolio. When the stock market's screaming through the roof, those assets are boring to own because if fells like they're holding us back.
During a period of time where the stock market drops 25 to 35% though? Those positions feel awesome again. Diversification is back in a big way in 2022, and your portfolio is already diversified.
A Strategy to Weather the Storm
I'll finish with this thought. The reason I'm smiling is that if this is about average for the stock market pullback, then our portfolios have fared really, really well compared to the broader stock market index. We should be muddling through this, and we're really pleased with how the portfolios have held up.
If you're pulling money out of your portfolio on a regular basis, we've already planned a few years’ worth of that cash flow into our modeling for you. The cash flow that we have allocated, plus the additional dividends and income within your portfolio, should have you in a position to last three to five years without selling any stocks at this stage.
Looking to the future, how is the stock market going to continue to go up from here? That can feel much harder to justify and rationalize when the stock market has been up as much as it has been.
When the stock market pulls back 25 to 35%, it means our future annualized returns have a much higher likelihood of being encouraging. While we're not calling a bottom here, we're also not calling this a crisis and jumping out and running to cash or gold or something else that we think is going to hold value.
As always, if you are concerned, if you're hiding under your desk or your bed, and too scared to call us, please, by all means, pick up the phone. We're always here with perspective for the decisions ahead.