Ready to Simulate Again?
Greetings from your SWFG team. We hope you and your family are staying healthy during this recent surge in COVID-19 cases.
With the broader U.S. Markets up at least 14%, your SWFG team thought it imperative to remind you that markets can and will go down at some point. We have been spoiled with the results of the markets since late March 2020. Though we are still encouraged about the equity markets, they do not go up in a straight line. Below we have updated and reprinted a piece that we wrote in March 2018 entitled “Ready to Simulate.” We urge you to read it and consider how it applies to your portfolio.
Additionally, we thought this video link below was a well done and concise update on the recent surge in the COVID-19 Delta variant: The Outlook for Vaccines, Variants and Elusive Herd Immunity
___________________________________________________________________________
Originally Posted on 3/8/18
“Studies have found that students who practice and witness simulations show greater competence in a range of situations…”
“The Vigil” by Zachary Jason, Boston College Magazine Winter 2018
Dad, Mitchell, Max and others following our 5 hour flash flood simulation
Some of you know that my 17 year old twin boys, Mitchell and Max, spent five weeks during the summer of 2017 living in the woods of Oregon performing trail maintenance through the fabulous organization Northwest Youth Corps. They have been firmly bit by the “outdoors bug” much to Dad’s joy. The next summer, they hoped to work similar roles in Yellowstone National Park. However, the application process is tough – in 2017, the Park only took 62 young men and women from over 700 applicants.
To help their chances of winning a spot they told me late in the summer of 2017 that they wanted to earn the Wilderness First Responder Medical Certification (WFR). This is a five full day course with many hours of pre-work and an exam to be taken before the course and at the conclusion to earn the designation.
To that end we set off for the University of Alabama-Birmingham shortly after that Christmas for our five day course. After settling into the classroom on the first day, we were soon performing simulations on “patients” with frequent feedback from instructors. We would receive a base level of knowledge in a lecture setting then perform simulations over and over again. This culminated on the fourth day at a State Park with a five hour simulation of a flash flood that severely injured six hikers. One of the “injured” was my son Max. I was designated as a deputy team leader to coordinate our treatment of the injured.
These incredibly lifelike simulations were so helpful in the learning process. I couldn’t help but wonder, “how could Warren and I create something like these simulations to help train our clients for inevitable bad markets?” I have concluded that it would be very difficult to match the authenticity of the WFR simulations. But we have tried in this piece to give you perspective and show what has happened in prior market environments based on your portfolio’s allocation to stocks and bonds.
One of the challenges we face it is that the last six and a half years have set a record for low market volatility. Up until last month, actual markets had not even given us anything close to helpful simulations to help you navigate inevitable downturns.
THIS IS NOT NORMAL! REPEAT – THIS IS NOT NORMAL!
We implore you not to extrapolate the recent tranquil past of the markets. In doing so, you will only be setting yourself up for disappointment and potential irrational responses. We need you to get out of the proverbial classroom and get out into the field and perform simulations. The Dow recently hit 35,116 on August 3, 2021. Consider the following:
What does a potential future decline in the DJIA look like from its high on (8/3/21) of 35,116?2
2-Source: Thomson One
The average decline in the U.S. equity markets EACH year has been 13.7% over the last 70+ years.* We think it is reasonable to factor in this range of a percentage decline in your portfolio at any juncture. If we had a 15% decline in the DJIA from todays (3/8/18) close of 24,895, the markets would be back to where they were June 8, 2017.
Not that we are predicting a 30% drop in the DJIA, but if it happened, the DJIA would be back to where it was not even two years ago on March 17, 2016.
Some of you may be thinking, “but Warren and Brian, you told me to diversify into bonds so that my portfolio would not be as volatile.” That is why we constructed the following chart of different allocations of stocks and bonds. This chart demonstrates how different allocations fared in past markets. Of course, your results could differ from what is enumerated on this chart. Like a signature – every market decline is different.
We have highlighted an allocation that is 60% stocks and 40% bonds that is close to our average retired client. With this allocation, one can see that the 49% decline in the S&P 500 from 3/24/00-10/9/02 resulted in this portfolio being down almost 24%. The more you remind yourself of these inevitable downturns, the better opportunity you have to be a successful long-term investor.
As I was concluding writing this piece, I had the incredible fortune to read “The Vigil” that appeared in the magazine of my alma mater, Boston College. It was an incredible story of teaching nursing students about end of life care through real life simulations of a dying cancer patient. The impact these simulations had on these students was absolutely amazing. I highly recommend clicking on the link above to read.
Warren and I will continue to attempt to create simulations to help you on your investing journey because one day soon you will need this training.
Thank you for the trust and confidence you have placed in us and giving us the opportunity to provide education to you on your financial journey.
As always, thank you for the introduction of your friends and family that so many of you have made. We are honored to serve you! As a service to our clients, we are happy to act as a sounding board for your friends and family. If any of them should need a second opinion on their financial situation, introduce them to www.striblingwhalen.com or call us at 678-989-0048.
Follow us on Twitter - @brianedwhalen
Regards,
Warren D. Stribling, IV, CFP®
Principal
warren.stribling@striblingwhalen.com
Brian E. Whalen, CFP®, CIMA®
Principal
brian.whalen@striblingwhalen.com
Sources:
*American Funds-“Long-Term Investors can Weather Market Declines”
Please note that all archived newsletters are for informational purposes only. Investment decisions should not be based on the content provided herein. For the most up to date statistical information and analysis, please contact your financial professional. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Past performance does not guarantee future results.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Brian Whalen and Warren Stribling and not necessarily those of Raymond James. Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website's users and/or members. Raymond James Financial Services, Inc. does not provide advice on legal issues. These matters should be discussed with the appropriate professional.
The Dow Jones Industrial Average is an unmanaged index of 30 widely held securities. The MSCI EAFE (Europe, Australia, Far East) index is an unmanaged index that is generally considered representative of the international stock market. These international securities involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. The Bloomberg Barclays US Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented. Municipal bonds, and Treasury Inflation-Protected Securities are excluded, due to tax treatment issues. The index includes Treasury securities, Government agency bonds, Mortgage-backed bonds, Corporate bonds, and a small amount of foreign bonds traded in
U.S. Keep in mind that indexes are unmanaged and individuals cannot invest directly in any index. Index performance does not include transaction costs or other fees, which will affect the actual investment performance. Individual investor results will vary.
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® in the U.S.
