An Important Letter From Silver Oak Advisory Group
March 25, 2008
Dear Clients and Friends of the Firm:
During this time of volatility in the financial markets, we wanted to write to you in order to assure you that we are paying close attention to what is occurring. More importantly, we want to let you know that we are continuing to focus on ensuring that your money is invested safely, commensurate with your goals and risk tolerance.
The Wall Street Journal called last week the "Week That Shook Wall Street." Headlines (and "talking heads") are reporting all kinds of bad news, enough to make even the most resolute investor experience some fear and anxiety. And it raises the inevitable question: should we be doing something different with our money to keep it safe? Most of us experience emotional reactions about our money, and it is normal to feel the impact of losses more intensely than gains. This is especially true for those who are taking distributions from their portfolios or are close to retirement. As we said in a letter to clients in November 1994: "The reality is, volatility is probably the most difficult aspect of investing for individuals to deal with on an ongoing basis, and as a result, it is something we give a lot of attention to at Silver Oak Advisory Group."
None of us can predict the investment future and there are no risk-free assets. During times such as these it can be difficult to resist looking for "the magic answer" to the question of what to do when the market is particularly volatile. Over the last 17 years of business, we have been challenged by the markets on many occasions. Happily, our broadly diversified portfolios came through each challenge successfully.
We at Silver Oak Advisory Group continue to believe in the strategy of investing across major asset classes with dissimilar patterns of return, in a disciplined balance of stocks and bonds. We use this strategy to create a prudent portfolio that is individualized to each client and designed to achieve your long term financial goals. We recognize that it is extraordinarily difficult to be a successful long term investor, especially in these times of nonstop media stories that often provide conflicting and confusing information. Please be assured that we continue to manage your portfolio with a deep commitment to your financial well-being.
And please contact us if you want to discuss your concerns on an individual basis.
Sincerely,
Deborah L. Thomas, JD, CFP®Stephen W. Hewitt, JD, CFP®
Benjamin E. Gilbert, CFP®
Jessica M. Howe
What to do in volatile investment times?
- Hang in for the long term. Recent market losses have only taken some stock indexes back to where they were one or two years ago; even large point drops are not-so-bad percentage drops. Your money needs to be invested for 20 or 30 or 40 years, and there is time for the markets to recover. If you are dollar cost averaging, perhaps through monthly contributions to your 401(k) plan, you will benefit from the lower prices when you buy more shares for the same dollar amount.
- Don’t panic, but assess your risk tolerance again. Some investors thought they could handle portfolio volatility before they really had a chance to experience it. Now that you’re actually living through a bear market, it is entirely appropriate to reevaluate your stomach for risk. A shift to more fixed income may help mentally and financially.
- Keep your eye on the big picture. Some people exacerbate the mental agony of a down market by focusing on their worst performers. Rather than fixating only on your stocks that took a dive, you should look at your portfolio as a whole. Being prudently diversified in both bonds and stocks, domestic and international, usually means not everything is going down at the same time, and the last year is no exception.
- Save more and spend less. These two actions will build your future financial security better than portfolio returns, and are entirely within your control. Especially for those living off their portfolios, the withdrawal rate is critical; taking out too much money in the early years (or in down years) may put you at risk of outliving your money.
- Call your investment advisor for reassurance and review. Turn off the TV commentators and listen to the people you know. We can update your retirement projections, discuss your asset allocation, review your spending concerns.
- Retrain your emotions. "Chances are... you tend to become overenthusiastic when prices (and risk) are rising, and to sink into despair when prices (and risk) go down. So you need to train yourself to turn your investing emotions upside down. Selling your investments every time they take a sudden drop will make your broker rich, but it will just make you poor and jittery." (Jason Zweig, Your Money & Your Brain, p. 173)