The brutality across global stock markets this year has now become evident to everyone, regardless of how closely they pay attention. Panic is in the air and no risk assets have been spared at this point, even the Nifty Nine or the FANG names that were the last vestiges of the 2012-2015 bull run.
Too often, we think about “investors” as a monolithic group of people that should somehow all feel and act in the same way, but the reality is very different. Investors of different age groups have widely varying needs and risk tolerance situations. I attempt to break down how rational investors ought to be thinking right now, given what’s going on out there…
Investors in their 70’s
“I have a balanced portfolio in which fixed income and cash equivalents are somewhere between 50 and 60% of my allocation. I am drawing down only what I need to live on, leaving the remaining amounts of my capital in the investment markets for long-term growth. Why don’t the kids call?”
Investors in their 60’s
“I’m really glad I have a financial plan in place, and, according to the plan I will be fine. I need to tolerate the ups and downs of equities because there’s a decent probability that I may live another 30 years – and cash isn’t going to keep pace with my cost of living. Now leave me alone, NCIS is starting.”
Investors in their 50’s
“I have a financial advisor but he works at a brokerage firm and I only hear from him when he wants me to buy into a new fund or flip a muni bond to buy a different one. I have no idea what today’s volatility means for my long-term situation. All I know is it makes me feel like something is wrong. Maybe I should be talking to a financial planner so I can figure out if my spending needs are realistic.”
Investors in their 40’s
“This bites. But I’ve seen this all happen already. First I blew myself up with dot com stocks right out of college. Then the financial crisis blew me up, even though I was being conservative. I didn’t sell then and I’m not selling now. I wouldn’t know when to buy back in anyway.”
Investors in their 30’s
“I’m focusing on my career. I have no idea what’s going on other than I haven’t been promoted in 18 months. Regardless of what’s happening in the market, I have nowhere near enough money in my IRA or 401(k) built up. And this f***ing baby does not stop crying. You think I have even a second to worry about China?”
Investors in their 20’s
“This is a beautiful opportunity. I have nothing but time and the more I put away now, the more those dollars multiply. I feel bad for mom and dad, but I get a chance to build up my portfolio of financial assets at a 20% discount to where they were a year ago. Why on earth would I want to be doing my buying at record highs? I’m just gonna shake…shake…shake…”
Now, of course, this is the rational way for investors to be thinking about the correction-turned-bear market. Most investors haven’t quite arrived at these realizations in time to coincide with where they are in life.
People in their 20’s are logging back into their Wealthfront accounts to dial down their risk setting when they should be dialing up their regular contribution amounts.
People in their 30’s are trying to keep up with what’s going on, even though they are utterly bewildered every time an app on their phone buzzes to inform them of the latest global sell-off.
People in their 40’s and 50’s don’t necessarily know whether or not they’ve got a plan in place, or they don’t adhere to what the plan dictates because there’s a weak advisor at the helm.
People in their 60’s and 70’s are blown away when they look at their statements because they’ve allowed someone to talk them into “fixed income alternatives” like junk bonds or MLPs – which don’t act very bond-like at all.
It’s a mess out there. My crew is on the front lines in a market like this. We do our best to explain this stuff, just like advisors around the country are currently doing. Explaining it isn’t the hard part – it’s re-explaining it again and again until it sinks in that makes the real difference in a client’s life.