W.I.T. #55 - Don't Make This Portfolio Review Mistake
Timing differences, even ones of as little as a month, can have a huge impact on how you feel about your investments.
Three Things Worth Sharing
Mobile phone ad – Check out this RadioShack mobile phone commercial from 1987 (and note that the $2,500 touted in the ad the equivalent of $6,800 today!)
Median downpayment on houses – What is the typical house downpayment in your state?
'Footloose' in real life? – Earlier this year the Russian republic of Chechnya banned music that is too fast or too slow.
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VIDEO TRANSCRIPT
John Scherer:
The stock market has gone down quite a bit in the last month. Should you be doing anything different with your portfolio? That's going to be our topic on this episode of what I'm thinking from John. We've had a couple of client meetings recently where the conversation has come up about just the stock market's not doing so hot. How do we think about this? Should we be doing anything differently to address it? And I figured if a couple people have the question, then more people do. So I, I thought I'd address that and just talk about some of the realities and share how we look at this. So our reporting software allows us to put in dummy portfolios. So I just made an example portfolio to sort of mimic the type of conversations we've had with folks here recently. And we'll pull up a graphic.
And so here's an example. A client that, where she's retired, she has an IRA, a brokerage account and some things. He's still working with his four hundred one k. And you can see the sort of the concern that was, you know, in general that we've seen here recently is, hey, we just took a two week period for this example. You know, we started with over a million dollars. Two weeks later we got less than a million dollars. You can see the return, you know, two and a half percent down in that short time period. You know, how does that, what do we do about this? Right? And for those who've been around a while, you can see below that we benchmark two r to the s and P 500 into international stocks and to bonds.
And you go, hey, you know, our returns are kind of in the middle of that, what we'd expect. But still it doesn't help us. What do we do with this thing, right? And in this case it really is a situation of timing and when you pick the time horizon. So we went back and we looked back to December 1 because for most people we had our annual review meetings or our fall review meetings just before thanksgiving. So we said, listen, since the last time we talked, what is your portfolio done? So here's an example of what that looks like, again, using the same set of data, of sample data on things, right? And you take a look at that number and that's a heck of a lot nicer to look at, right? Geez. Up 5%. And what is that? December, January, February, March, you know, most of April, about five months. Up five.
Hey, I'm feeling pretty good about that. Right. But it's that time period when you have this shorter horizon on things that, you know, things don't look quite so, so good. And it's a matter of the timing on stuff. We also took a look and said, what if somebody had just looked at that time period and ended at the end of the third quarter right now look at those numbers, man. You think the world's on fire. Life is good as far as, you know, getting what, you know, eight plus percent return on things, you know. But when you take a look at just that two week period, you go, oh, it feels like the, you know, wheels are falling off the cart sort of thing.
So one of the questions when we, when you see, when you see portfolio performance and things look bad is are you looking at a long enough time horizon with it? And I'll tell you, five months is not nearly long enough. We're talking terms of five years, right. But certainly to any two weeks, you know, any two months and really even any two years, we're going to see a lot of swings. And so keep our eyes on what's our goal. And for both of the clients that we're talking about that came in and had these conversations, and for most of us, it's, listen, our stock money is for the long run with things, right? We're looking at that long game on stuff, and I relate it to looking up and seeing an airplane up in the sky. We've all been in airplanes before, and there's a whole lot of turbulence while you're sitting in the airplane. But when have you ever looked from the ground up and seen turbulence on an airplane? You know it's up there. Right.
But when you take that 30,000 foot view, it smooths things out. And that plane's going in the direction where it wants to go. Same thing with our portfolios. Yep. A month, two months, three months, a year, we're going to have some pretty big bumps. But long term, we're headed in the right direction. So the answer is stick to the plan, don't make any changes. And that's what I'm thinking about with regard to this topic.
As always, I'm interested in knowing what you're thinking about. If you're watching on YouTube, jot a comment in the comment box, or if you have a question that you want us to answer on what I'm thinking, shoot me an email directly. And as always, thanks for watching.
John Scherer CFP® is a fee-only certified financial planner based in Middleton, Wisconsin. John has over 20 years of experience advising clients on personal tax, investment, and financial planning. You can reach him by email at john@trinfin.com.