Let’s talk about How to Handle Market Downturns!
To remind clients to keep saving for their future selves, we try to make the investing process fun. Instead of solely announcing numbers at clients with multiple pages of legal paperwork, we remind clients to focus on what they can control with their investment accounts. To see how we do this, check out this sneak peek below of a Quarterly Email which we send to clients.
We mix up the themes each quarter, and also personally tailor recommendations for the client’s unique situations. My favorite part of these Quarterly Emails is that we attach a Paid Invoice so clients can understand how Well-Rounded Success gets paid and the amount of money which was taken out of their accounts for our services. As you can read in a previous blog post, the smoke-and-mirrors nature of the Personal Finance industry really grinds my gears, so we try to be as transparent as possible.
In this quarterly client email, you’ll see the results from our annual survey and nonprofit vote. We ask clients to give us anonymous feedback in an annual service so we can improve the client experience. A favorite part of this survey is a nonprofit vote where we have clients vote between three nonprofits. The nonprofit with the most votes receives 2% of Well-Rounded Success’ top-line revenue for that year.
Help Us Give More Next Year
You can add to next year’s annual nonprofit donation by sharing your thoughts in our anonymous survey!
We’re researching how to offer our services and content in an additional format so we can help more people in a new way. We think we know what people want, but we rather hear directly from you!
For every survey that’s completed, we’ll add $10 to our annual nonprofit donation with a maximum of $250. So please help us fully reach this goal!
(It’s super short and simple, I promise. And there’s a corny joke reward at the end of the survey!)
Survey ends 02/25/2019
If you wish to explore a business relationship so you can receive these types of personalized emails, learn more at Well-Rounded Success’ Services.
Email Subject Line
4th Quarter of 2018: Your Quarterly Email from Dan & Well-Rounded Success
Greetings <Insert Name>!
Please allow me to put on my ‘Financial Planner hat’ to discuss the below points as well as personalized recommendations for your investment account. Don’t forget to scroll down to the Tweaks For You section as well as your paid invoice.
Year End Survey Results & Nonprofit Winner
[Information gained from our 2018 Client Survey]
Regarding the nonprofit vote, we’re thrilled to continue this annual tradition to donate 2% of Well-Rounded Success’ top-line revenue to a nonprofit as voted by our clients.
2018’s nonprofit winner is…. Equal Justice Initiative (EJI)!
Earlier this month, we donated over $1,000 to this nonprofit so they can continue EJI’s meaningful projects to help vulnerable populations in our country. Thank you for helping us make a difference for our communities!
You can’t control the markets so we encourage you to focus on what you can control with your investment portfolio. We created a process to address the below themes when we opened your investment account and we’ll discuss all these bullet points in future Quarterly Emails.
- Consistently invest (2017 Third Quarter)
- Keep your money invested during fearful moments (2017 Second Quarter)
- Keep your costs low (2017 Fourth Quarter)
- Be diversified
- Stay calm during market downturns (This Quarter’s Theme)
- Position your portfolio to your risk tolerance and time horizon (2018 3rd Quarter)
- Systemize your portfolio to sell high and buy low (2018 2nd Quarter)
- Efficiently invest with taxes in mind (2018 First Quarter)
Let’s discuss How to Handle Market Downturns: Horror Show or Part of the Journey?
Stock market volatility – a.k.a. its ups and downs – is back. You have two choices on how you can view periods of overall financial market losses:
First Viewpoint: You can visualize this stock market volatility as a villain like these two examples:
- In Poltergeist, the little girl warns, “They’re here!”
- “Who?” you may ask, well… stock market losses! AHHHHHH!!!
- In The Shining, Jack Nicholson breaks through a locked bathroom door with his axe and then sticks his head in the hole sneering, “Here’s… Volatility!”
Second Viewpoint: See your investments as a journey like going down a mountain river.
You contributed to your investments at the top with precipitation and now your money is traveling towards your retirement years. There may be times where you experience some rapids but you have faith that this journey will lead towards calmer and bigger waterways.
Yet, our human brains are programmed for us to remember the rapids instead of the gentle stretches.
- For example, people are quick to remember 2008’s market performance. Can you easily explain the themes of every year between 2009 and 2017? Each of these years saw a positive year for the S&P 500 index yet people always talk about 2008.
Volatile years with stock market losses is nothing out the ordinary. Historically speaking, the last few years have been rare because we haven’t seen much volatility. This mellow stretch in the markets led to some investors getting overconfident that the market always goes up.
- Franklin Templeton Investments has a fascinating chart showing annual total US stock market returns compared to the largest loss of the same year. 2017 and 1995 proved to be tied for least volatile year in the last 30 years.
Know Your Brain: Loss Aversion
Danny Kahneman won a Nobel Prize for his work alongside his fallen comrade Amos Tversky. They conducted many studies and Kahneman shared their findings in his book Thinking Fast and Slow. One of their studies focused on Loss Aversion. They wrote, “when participants in an experiment were instructed to ‘think like a [stock] trader,’ they became less loss averse and their emotional reaction to losses (measured by physiological index of emotional arousal) was sharply reduced.”
Burton Malkiel explained it concisely in A Random Walk Down Wall Street: The Time Tested Strategy for Successful Investing, by saying “Kahneman and Tversky concluded that losses were 2½ times as undesirable as equivalent gains were desirable. In other words, a dollar loss is 2½ times as painful as a dollar gain is pleasurable.”
Just like many behavioral finance biases, the first step to combatting this trap is simply being aware of the trap. No one likes to see their account values go down but remember to think how Loss Aversion may be influencing your investment behavior.
Long-Term Investing Inspired by Jack Bogle
Our brains are hard-wired to notice risks. Our fear of the unknown can program us to fight, flight, or freeze. Instead of defaulting to one of these survival instincts, think of the book title by Jack Bogle. The recently lost Jack Bogle, the founder of Vanguard and of index funds, titled one of his books, “Stay the Course.”
Remember, the dollar value of your account is just a dollar value on your computer screen. You haven’t lost any money until the day you turn that number into actual dollars when you withdraw the money.
- My friendly challenge to you is to reflect on your overall investment goals, your time horizon, and the consequences you’ll experience if you withdraw sooner than you anticipated.
- To nudge you to reframe your mind, since the market isn’t at all-time highs as of this writing (01/21/2019), it may be a good time to buy and contribute to your investments since you’ll be able to purchase more shares.
- Many of you already are automatically doing this because you initiated recurring deposits so you can Invest with Dollar Cost Averaging
If this money in your investment account is earmarked as your “grey-haired money”, then what would your “grey-haired self” want to do in your situation? Think critically and make informed decisions before letting your emotions make hasty decisions during unnerving times.
Do you think your journey ahead will mostly be in rapids or on a steady river stream? You can’t control the markets but you can control on how you invest.
And to reference another horror movie: just like in Birdbox, you can always put your blindfold on during the rapids and not obsess over checking your account’s value on a daily basis.
Still Want to Revisit Your Plan?
We initially determined your goals for your investment account, your time horizon, and your risk tolerance before starting your investment journey with us. If you wish to revisit this, then let’s have a chat! Now that we finally saw a negative year, we now have more data on your investment composure and risk tolerance.
We shared this opportunity for you to assess your own risk tolerance with a questionnaire in our last quarterly email and we would love to give you the opportunity to see your results again and/or fill it out for the first time.
Get Your Personalized Survey Here:
<Client Name> Investment Personality
After you complete the survey, let’s schedule our review meeting to go over your results, your portfolio, any other money questions you may want to discuss, and to also catch up about our life journeys.
A Tribute to Jack Bogle: Jack Bogle fought for the average investor when he created low cost options to invest by following indexes instead of paying investment managers’ fees to try and beat the markets. Warren Buffett praised Bogle saying, “Jack did more for American investors as a whole than any individual I’ve known. A lot of Wall Street is devoted to charging a lot for nothing. He charged nothing to accomplish a huge amount.”
- Bogle’s index investing philosophy converted me a long time ago. You can read about it in this previous article: Passive vs Active – Keeping Your Costs Low.
- For our clients investing with Betterment, you’ll notice that most of your ETFs are managed by Vanguard within the Betterment portfolios.
To finish, I’ll share two of my favorite Jack Bogle quotes which are fitting for this article’s theme:
“Investing is not nearly as difficult as it looks. Successful investing involves doing a few things right and avoiding serious mistakes.”
“Time is your friend. Impulse is your enemy.”
Further Reading Resources
- Vanguard’s Volatility Strikes Back
- Fidelity’s Six Tips to Manage Volatile Markets
- Motley Fool’s How to Cope with a Down Market
- Capital Ideas’ How to Handle Market Declines
- Betterment’s How to Use 2018’s Market Volatility to Your Advantage
Some General Stats About the Markets: As of the end of the fourth quarter (12/31/2018), the broad-based Morningstar US Market Index decreased 14.08% for the fourth quarter and was down 5.05% for 2018. The broad bond market (Vanguard Total Bond Market) was up 1.59% for the fourth quarter and down 0.13% for 2018. International Markets (MSCI ACWI Ex US NR USD) was down by 12.02% for the third quarter and down 16.00% for 2018. For more numbers, check out this link: MorningStar Quarter-End Insights.
Please let me know if you want to check-in about your goals or to refresh anything with your portfolio. I’d be thrilled to chat. I nerd-out about this stuff and it’s an honor to help you.
Tweaks For You
To be as transparent as possible, attached to this email is a Paid Invoice breaking down the money that came out of your account for our Investment Management services. This is for your reference only and there is no need for any action.
Your Returns, Quarterly Account Statement, and Tax Forms
Update From Dan
One of the themes at the start of 2018 was to get ready for an intense year. We moved to a new city into a new home, got married, finished a basement, continued to grow Well-Rounded Success, became an uncle (Hi Madeline!), and went on a Greek honeymoon. All of these experiences are great situations and I try to practice gratitude often. Yet, sometimes last year’s pressures felt overwhelming. It’s nice to start 2019 with more focus.
2019 will revolve around growth and relaxation. I’ve started my Advanced Financial Planning Master’s program to add more value to clients and I intend to create new professional projects (like the online course offering) to continue growing Well-Rounded Success. Yet, to practice what I preach in pursuing Well-Rounded Success, I’ve also intentionally taken some projects off my plate to give me more time to relax, contribute to my personal life, give back to my local and global communities, plus spend time with my families and pals.
So, if you want to relax and grow with me in 2019, let me know! We don’t have to just chat about money, even though I love nerding out about this subject. We can find a time to go on a hike, play a round of disc golf, enjoy a brew, sip some coffee, hit some balls on the tennis court, schedule a video chat, talk about books, converse about life, and/or enjoy each other’s company. Or you can introduce me to one of your favorite hobbies.
Thanks for reading and I hope your 2019 is off to a great start!
It’s an honor to help you and please let me know if you have any questions!
Dan Andrews, CFP®
Thanks for reading and if you want guidance on how to navigate your personal finances or you want help with your investment strategies so you can receive these personalized quarterly emails, please get in touch with me or learn more at Well-Rounded Success’ Services on the website.
About the Author
Dan Andrews is the Leader & CERTIFIED FINANCIAL PLANNER™ of Well-Rounded Success. Dan enjoys guiding and encouraging millennials through their ‘adulting’ responsibilities. His behavioral-finance style focuses on helping individuals in the Well-Rounded Success community define his/her own definition of success, make good decisions, and to also be philanthropic while along their journeys.