Discovering Responsible Wealth
Discovering Responsible Wealth
March 2020 Coaching Call / Market Update
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On this episode Frank Congilose and Robert Farrell, Investment Manager at Tomoro Financial, sit down to provide some insight on the current state of the market and the volatility we are seeing.
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The following show is for informational purposes only. Individual situations may vary and the information should be relied upon only when coordinated with individual professional advice.
Speaker 2Welcome to discovering responsible wealth. This is your host, Frank Cangialosi. Here we are, we're sitting at the tail end of February and we're at a point where we're getting a lot of market volatility. Uh, the Corona virus is kicking in and we know that our clients and our friends and our community are probably wondering, you know, what's kinda going on? Should I be thinking about my portfolios and so forth in which you absolutely always should be. And so what we've done is we've invited one of our partners, one of our guests, our advisors , uh, Robert Pharrell , a registered representative , uh , with CNA financial group, park Avenue securities, and a partner over tomorrow financial right here in wall township. So Bob, welcome to the shows . Great to have you here. Thanks Frank. Are [inaudible] doing all good? So Bob, you know, it's interesting when I bring you out to the show and when we chat once in awhile, you know, people might wonder who's Bob Farrell and so forth. And you've spent how many years in finance and
Speaker 3I started in 1984 and I've been in the financial services business, particularly with the bond and the stock market since then.
Speaker 2And you've been on the institutional side for many years. Right . And so then you, you know, after you retired from that, you got into, you know , working with us, working with park Avenue securities and you've really been an asset to our organization and to all of the clients that have worked with us and with you over the years. So we appreciate everything that you do. Well , thank you. I enjoy working with your class as well. So Bob, you've seen, you know, different levels of volatility over the years as they buy. And so, you know, I was looking at, it's like, you know, every time we turn around there's a different headline, you know, whether it be political, whether it be, you know , something different going on your take on what you're hearing on Corona and where it's going and so forth. Um, just a couple thoughts.
Speaker 3So the Corona virus , um, the impact on the market unfortunately is not how many people it's going to kill. If you think about how many people die in the United States every year from the flu, it's upwards of 30 or 40,000. Um, the impact is a global shutdown. The impact is a supply chain. And I think that's what's a little different with the coronavirus . It's unfortunately not focused on people that become ill . It becomes what happens when the factories get shut down and that's why it's affecting our markets.
Speaker 2So it's a great insight. And so, you know, it's one of those, you know, when we look at that, you know , a couple of, you know , perspectives is, you know , one of, we look at interest rates today, you know, I know that we look at like a 10 year or we look at a 30 year bond and you know, I think they're one 30 ish or somewhere in that range where [inaudible]
Speaker 3yeah, 10 year U S governments are one 34 bonds or one 82 . So what's happened as a result of the coronaviruses doing a real flight to quality and that flight to quality has been U S securities. They've been the beneficiary , uh , having tenure notes at historical, those at one 34 and having bonds and one 82 , um , the curves and verdad . Um, and the decision is now does the federal reserve, I'm the two lower overnight rates , um, as a result of this. Um, my personal opinion is I don't think they do unless this really grows in the market and the equity market gets impaired. I don't think the federal reserve will do much. Um, particularly in light of where we stand with unemployment. Um,
Speaker 2I mean, unemployment rates unbelievably low. Absolutely. I remember listening to Bloomberg guy yesterday, a consumer confidence at the moment has been, you know , pretty good. And so, you know, when you look at that, you know, at the end of the day it's like with the exception of the supply chain and people being concerned about that as like, you know, where are we at? And so you got a lot of speculation that's going on.
Speaker 3It is all the indicators point to a growing economy. You have a historically low unemployment rate, you have consumer confidence that arguably an all time hauling. You have durable good orders that are strong and the economy is trucking along pretty well. And most importantly no inflation. Um, so we're kind of in a perfect point right now in the market.
Speaker 2So one of the , uh , charts that I had pulled up and one of the things that I looked at, you know, we were talking about it before is, you know, so we get different statistics that we look at and just for insights. And one of them was, you know, the U S market and inter year gains and declines and where it ends up. And so, you know , it's based on the Russell 3000, but if I look over the course of the last say 10 years, it's not uncommon for the markets to be down at any point in the year at 5% or 10% or whatever the case might be. Absolutely. And yet at the end of the day is many of the times when this has occurred, if I looked at your 2009, 2010 , uh, 2012, 2014, 15, 16, all of those years where we've had low points in the market, every one of those years had finished up. So we're going to have that type of volatility.
Speaker 3Volatility, like this needs to be anticipated in the market. Um, a market's gonna probably compound at somewhere between six and 7% over a long period of time, but it's not gonna look like going up six and 7% every year. So you're going to have years where you're up like last year, double digits. Conversely, you're gonna have years that potentially could be flat or down a little bit. That's a normal operating equity market. I also think it's important to note that the hiccup we had over the last couple of days, you know , don't look at it as total numbers, look at it as a percentage.
Speaker 2That's a , that's a great insight. So maybe take a minute and expand upon that a little.
Speaker 3Certainly. So you know the Dow , which is only 30 stocks or the S and P, which is a lot better, that being done, 70 SRP points or 80 S and P points when the S and P is at 3,200 is a couple of percent. You can't look at that number. Five years ago or seven years ago when the market was 35% lower because it's a 6% and I think unfortunately the media tends to broadcast numbers instead of percentage. So when the download through two significant days being Monday and Tuesday down a thousand points and Donald was 900 points the next day, and you read in the media that you've had two consecutive days close to down a thousand points, what you really did is gave that four and a half or 5% which is not great, but we're back to being unchanged and NASDAQ for the year and the S and P is down a couple of percent. And just to frame that these are markets that were up North of 20% last year. So from a panic side, this is not a horrific panic. This is kind of a normal operating .
Speaker 2The other thing you know that I would like to bring to light is , is that , um, you know, the return that we get when we're in the markets, stocks, large cap, small cap, mid caps or whatever the case might be, we have paid a risk premium. We're getting paid for the risks that we're taking. And so I always say is our clients are not speculators. Our clients are investors. Okay. And most of our clients have very long time horizons, you know, so if Bob before sitting here today and let's say I'm in my late fifties okay, even though I might not look like I'm in my late fifties and those of you listening myself as well, we can take that either way. It doesn't matter however you want to look at it. But if I looked at, you know, my time horizon is not to retirement, say 10 years from today, it's through retirement, which may be a 20 or 30 or 40 year time horizon. So blips like this, you know, when we see that type of volatility or whatever in the scheme of things, you know , your thoughts on that just to share .
Speaker 3I think you framed it well too. It's not too , it's through and I think most people stereotype that that you want to get to a certain age but no reality. Once you get to that age, you need to have some kind of exposure to the market to protect yourself against inflation. So yeah, maybe a ratchet down equity exposure a little bit, but it doesn't end exact . And that's important to note because the idea of panicking in your late fifties thinking you're going to be out of it in your mid sixties and what you can't do that because more likely than not when somebody does retirement retire, 50% of their portfolio is probably still in the equity market in some way, shape or form. Um, so the sequence of return risk of just panicking and getting out is a personable
Speaker 2and you know , it's kind of like I liked the way that you frame that. I always, you know, cause I'm wondering as I speak in pictures, nine times out of 10 when I'm giving , you know, speak with somebody and I look at it this way, it's like while we're earning and we're in the workforce, okay we have cash flow . So there is no pressure on our money. We have time to allow things to correct. If there is a correction in the market, and by the way there's going to be corrections several times over our lifetimes, but at the end of the day is the key is not to try to time the market. You know , I can't time it twice, which is I've got a time the out and then I've got a time getting back in. Yeah, absolutely. And I'm not an advocate. I mean there are professionals that time to market and having traded at different shops around. I've gotten paid to do that before. Um , it's a full time job and you need to be 100% involved and that's committed. There's a big difference between an investor and a trader. Timing the market as a trader, an investor does not time the market. Our clients are investors. And the other perspective is , is that , um , I would say that most clients that we deal with and most people that are listening to this have well diversified portfolios. You know, cause we advocate asset class investing, which is, you know, different asset classes, large cap, small cap, mid caps , uh, international , uh, fixed income , uh, that also in any of the portfolios that are out there that are being designed are , are , are made to [inaudible] . It's almost a custom suit, which is based upon somebody's risk tolerance of what their comfort level is when it comes to volatility is like, where are you at and how does that work? You need a well diversified portfolio. So just in a reference, you have NASDAQ, which I think many people are aware of is unchanged this year. However, the S and P small cap is down seven and a half percent and the S right. So when you, when you're kinda in the S and P 500 is down three and a half percent. And conversely, some international stocks in particular in Europe are down upwards of eight or 9%. Um, bond portfolio has performed very well with despite the quality. And I think that is a real Testament as to why people need a proper asset allocation. So, you know, when we talk about that asset allocation, you know , the fact that, you know , someone may be down on their large caps and so forth, but on the other side of that is if I've got them in fixed income, their fixed income side could be doing better than it was. Rates are up 5% this year , um, that just year to date. Right? So I think it all goes back to a well diversified portfolio and the mortar number more diversified you are, the more you're built to withstand shocks like this . You know, people anticipate that when they build a portfolio. And so the message that we're really trying to get out to everybody who's really a couple full , uh , from our conversation here, number one is make sure that you have a risk tolerance that you are truly comfortable with. You know, I always laugh as , you know, when the market's going up, everybody's risk tolerances is all I should've been in more. And it's, you know, all of a sudden when we start getting volatility , it becomes that gut check of every really in a portfolio that we're comfortable with. And if you aren't, then you should make those adjustments and get to a place where you're comfortable. But at the same point, you know, our belief is, is that equities will always be a part of the portfolio. And when I say always apart, you know , the reality is is you know, Bob , when you just mentioned, you know , 1.3 on a two year, you know, for the most part you can't make money there. Well, you can't. However, I have an advocate that I do think that people need fixed income exposure. Absolutely. I'm just, you know, the frame, there are points where people think that, why I invest with such low rates, BlackRock's longterm bond fund is up 7% this year. Right. Which is a nice buffer for an equity portfolio. If one had small caps, that's down 7% and a mixture. Um , do I subscribe to rating and it stays going to zero? No, I don't. But I think rates could go lower if you kind of look at the amount of debt globally that's trading negative. So I think a well diversified portfolio, including a fixed income sleeve is important regardless of whether rates are 5% or 3% it's a great insight. And so your , our thing for all of our listeners is, you know , make sure you have a risk tolerance you're comfortable with, have a well diversified portfolio, having both equities and bonds in the portfolio. And then the other side of that is we're going to say is don't get emotional. And when we say don't get emotional, it's like sometimes you got to turn off the news a little bit so that you're not getting caught up in the hype because a lot of times their job is to keep you watching so that they can sell ad time. It's so true. And one of the things that I tend to tell my clients is generally most people's largest asset is their house. And if they got a a report every day that their house is up or down, they would become very emotional. You're not going to sell your house and you're not going to buy more house. It's just what it's worth. And when people have qualified money or longterm money that's invested, I think you need to have the same mentality that have a good advisor working with you. Understand there could be ebbs and flows, but don't be reactionary to it. Great insight. And it's like, you know, we want to give those picture examples. Like if we're driving down the Parkway, okay, and I look at retirement that way and I've got a long time before I get to my exit, I may tend to go a little bit more aggressive, but as I'm approaching the exit and that offer , I'm going to start slowing it down a little. But I don't stop. Okay. Right. But that would be dangerous. So that's the whole point of owning equities in the portfolio is as I get closer to and into retirement, I may have less equity exposure, but I'll always have some in the portfolio because I need the return. You need the return. And I think as people get older people, that's one of the few things that's going to give you a natural hedge against inflation. And the older you get, you wind up driving a lot. You're seeing your grandkids, you're doing things, you probably have more exposure to energy and inflation than most people. So it's , you need it. I always say is, you know, when you're retired every day Saturday, it's so true. And we spend more on Saturdays. I'm not there yet, but the more people I've talked to, that's a really good analogy already. So for all of our listeners, you've been listening to discovering responsible wealth. Our guest today, again Robert Pharrell , and this has been Frank Kaja Lewis , uh , does this our way of just keeping you up to date. We look forward to connecting real soon.
Speaker 1Advisors of the Institute of responsible wealth may be licensed for investment and insurance products. The Institute of responsible wealth as an educational division of CNA financial group, CNA financial group and its advisors are an agency or an agent of the guardian life insurance company of America, New York, New York securities products and advisory services offered through park Avenue, LLC, member FINRA, SIPC park Avenue securities is an indirect, wholly owned subsidiary of guardian. The Institute of responsible wealth and CNA financial group are not affiliates or subsidiaries of park Avenue securities or guardian, guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal or accounting professional regarding your individual situation. 2029 five six four five.