Is it different this time? You've been trained to invest for the long term. You've conditioned your clients not to flee at the bottom of a bear market. You've constructed your clients' portfolios based on Markowitz, Sharpe, CAP-M and diversification. But the question always remains.
Is it different this time?
Interviews with some of the best thinkers in the investment advisory field suggest, yes, it is indeed different this time. The recession is different. The markets are different. The problems facing Americans are different.
What follows are abstracts from interviews with seven leading advisors and analysts, all experienced, successful thought-leaders in the business of investment advice.
William Bengen, a certified financial planner, is the man behind what has become known as "the 4% drawdown rule." In 1994, Bengen wrote a watershed article in the FPA's Journal Of Financial Planning. He subsequently published three related articles on the topic. His exploration on "safe" withdrawal rates for retirees, which is based on historical data and asset allocation models, is considered groundbreaking. Which makes his reaction to recent events all the more troubling.
"I've been concerned for some time," says Bengen. "I've raised more cash in client portfolios than at any other time in the past. I've never felt this uncomfortable about what's happening in the American economy." Bengen started managing money in 1975. For lifestyle reasons, he manages only $50 million and does not accept new clients.
On average, his portfolios have allocated 45% to bonds, 35% to stocks and about 20% to money markets.
"There are risks in the economy and financial system that I cannot get a handle on," says Bengen. "And if you cannot assess risk, you can't manage it. So why try?"
In the 2000-2002 bear market, Bengen says he could find good investments in small-cap stocks, REITs and foreign equities. "Now, I'm in defensive stocks like Johnson & Johnson, Berkshire Hathaway, and some commodity and metals mining stocks," he says. And if the American economy declines and brings other economies down with it, he fears commodities stocks will also lose their safe-haven status.
Bill Carter, who began his career in the throes of the 1973-'74 bear market, says the problems facing investors are more serious than any he's seen in his career. "But I think the worst of it is behind us," he says. Carter went down a list of "serious times" he's successfully managed through including the S&L crisis, which pummeled his Dallas-based clientele, and says, "Every time we go through one of these things
it seems like the worst one.
"I'm a believer in cycles," he says. "It doesn't matter what causes it, we go through them and we have always worked out of it. I've been doing this for 35 years and I've always made more money in down markets than any other time."