While crisis-level activity has largely subsided, advisors remain very active relative to "normal" levels of activity we saw during the bull market run.
During these volatile market swings and stay at home orders for investors, advisors remain very active. Investing activity last week was still two times average transaction volume as compared to the past 18 months. While the equity markets showed strong performance last week, advisors remained in a neutral risk stance. Cash as a percentage of portfolio dropped to 5% from 6.2%, a nearly 20% drop in cash allocations.
Advisors are very slowly reducing cash levels. Their attitude toward risk is neutral, repeating last week's trend, in that both risky and non-risky assets saw nearly zero net flows.
The next several weeks are going to be challenging for advisors and investors. The reality of the scope and severity of the pandemic along with the associated economic and market damage will hit home raising fear levels to new highs. In these times, it will be hard not to overreact, panic or lose hope. Strong emotions and behavioral biases including, anchoring, loss aversion, cascading and availability bias can cloud our thinking and lead to poor decision making. Engaging in realistic and practical planning discussions along with relevant behavioral coaching can provide essential support during these challenging times.
Advisors remain very active making small changes to client portfolios, harvesting tax losses, and fine tuning risk tolerance, while generally keeping their clients invested to meet their objectives.
Beneficial long-term decisions often feel counter-intuitive at the time, but don’t underestimate the value of a steady hand when things seem the most grim.
It’s only natural for someone invested in a poorly performing active equity mutual fund to wonder if it’s time to make a change. Should an investor sell a fund if it trails its benchmark for a year? Three years? Five years?
Investment time horizon is a critical concept in building wealth. Most investors have very long investment time horizons, typically decades or more.
We are experiencing a new peak in the rhetoric around trade, geo-politics, the economy and the business cycle. We have also seen increased market volatility.
“Now’s not a good time to invest,” or “I’m waiting for the right conditions” are familiar refrains we hear from investors and advisors alike. Fortunately for long-term investors who don’t take regular withdrawals from their portfolios, the sequence of returns doesn’t affect the ultimate investment outcome.