Advisors Urge Investors: Don't Panic.
Don't panic, review your portfolio and, if your stomach can handle it, consider buying more stocks. That's what many financial advisors have been recommending to clients during the latest stock market plunge.
At its lowest point over the past week, the Dow Jones Industrial Average was down more than 1,000 points intraday on Monday, before recovering 80% of that daily decline. But even after the recovery, the Dow was off 8% for the week.
Advisors tell ThinkAdvisor that the decline was overdue.
"The market has needed a correction of 10% or more for some time," says Bryan Beatty, an advisor at EBW Financial Planning, in Vienna, Virginia. "Traders have been looking for a correction to feel better about the continuation of the bull market longer term."
Beatty is sharing that information with clients and looking at possibly rebalancing portfolios in the next few days because of "portfolio drifts" from original asset allocation percentages.
Advisors whom ThinkAdvisor spoke with, like Beatty, seem to be taking a proactive approach, calling or writing clients to calm any jittery nerves with some historical data.
Andrew Rice, vice president of Money Management Services in Birmingham, Alabama, says he's been sending clients a bar chart from JPMorgan that shows that the S&P 500 has fallen an average 14.2% annually over the past 35 years but ended the year higher in 27, or 77%, of those years. He got a few concerned calls from clients on Friday but none on Monday.
Mary Brooks, a Raymond James advisor in Walnut Creek, California, and principal with IntegrA(c) Wealth Management, spent the weekend reviewing clients' portfolios and is calling clients this morning to review their allocations and where they place on the risk/return spectrum.
"If someone says I can't take this volatility and I have too much in stocks, we need to find out what percentage of stocks they can hold and not panic."
Then, Brooks says, she will selectively raise some cash from stock sales and eventually buy more bonds, but not right away unless investors are in a hurry.
"It's a wonderful opportunity to see what you own -- what's strongest and what's weakest. You don't have to be in a hurry to buy."
Vanguard, in a note it posted for ETF and fund investors, advises that investors who are comfortable with their investment plans stick with those plans, including regular investments through payroll deductions, automatic investment plans, or target-date funds. "Buying a fixed dollar amount on a regular schedule offers opportunities to buy low during market dips," Vanguard notes. "Over time, regular contributions can help reduce the average price you pay for your fund shares."
The question for investors and advisors, says Brooks, is whether the current market correction turns into a bear market, which usually requires a major economic contraction like a recession, a financial shock or interest rate hike. "We have seen a shock from China, and it's possible this will lead to a recession," says Brooks, adding that we're not there yet.
It's also possible that the Federal Reserve refrains from raising rates in September because of the situation in China and the market downturn.
Even economist and money manager Gary Shilling, president of Gary Shilling & Co., who tends to be a market bear, isn't convinced a global recession is coming. "When growth is so slow it doesn't take much to tip into a global recession, but the jury is still out," says Shilling. "Slow global growth has been going on for a while but didn't get a lot of attention until the big drop in oil prices and China's stock decline and devaluation."
Shilling is invested in very few stocks, favors 30-year Treasuries (including 30-year zero coupon Treasuries) and is short commodities including oil. He's closely watching fund flows out of China and other developing countries but notes that emerging markets today, though weak, are in better shape now than in the late 1990s because they have less dollar-denominated debt and can devalue their currencies.
Brooks says she already moved clients out of energy securities and emerging markets stocks -- ''not worth the risk" -- and is now reviewing earnings of all the stocks clients own going into the next earnings season. She favors four stock sectors: health care, consumer discretionary and consumer staples and, to a lesser extent, financials, and likes high-quality corporate bonds and munis, not Treasuries.
--- Related on ThinkAdvisor:
* Commentary: How to Minimize the Damage From the Current Sell-Off
* Why 'I Don't Know and I Don't Care' Is Underrated: Eric Nelson
* 10 Myths About Risk Tolerance and How to Accurately Measure It