Tucker works mostly with retirees and near retirees who have little time to make up lost ground if there is a big downturn. “My folks are not concerned, but, in anticipation, we made a point of meeting with our clients last fall to let them know they are OK.” Most of Tucker’s clients only have 40 percent exposure to equities. “When your portfolio is already adjusted for risk, a downturn is not as scary.”
Investors were getting a little too comfortable with the steady increases in equities, noted Jeremy Kisner, senior wealth advisor at Survest Wealth Management in Phoenix.
“Everyone in financial services has been shocked at the complete lack of volatility prior to this past week,” Kisner said. The MSCI World Index increased every month in 2017, a feat that had never occurred in the previous 30 years, he said. “So, instead of taking a breather, the markets accelerated their growth in January. The S&P 500 was up by 6 percent in January, which sounds like a good thing, but we all know it was not sustainable. We need corrections to keep markets healthy and valuations in check.”
Investors need to make sure their portfolios are diversified, said Marina Gross, head of Natixis Investment Managers’ Portfolio Research and Consulting Group.
“With equities fluctuating by hundreds of points a day, investors should try to understand the risk in their portfolios and the extent to which they are varied and uncorrelated” to the market,” she said. “Although alternative investments are not immune from the swings seen in the markets in the last few days, they can do more to protect against losses and reduce or completely avoid market exposure.”
Volatility puts active management back on the table, said Cooper Abbott, chairman of Carillon Tower Advisors in St. Petersburg, Fla. “This downturn is not necessarily a bad thing. It sets up an environment that is interesting for stock picking, which helps differentiate advisors.”
Abbott deals mostly with high-net-worth individuals, who, he said, have a good perspective on the market. “This is an opportunity rather than a time to be afraid, although you want to be skeptical about the stocks you are choosing for a portfolio,” he said.
Passive management has gained popularity during the bull market, but “low-cost, passive products could end up being the most expensive things you could buy,” said Matt Schreiber, chief investment strategist at WBI, a provider of institutional and private client wealth management solutions based in Red Bank, N.J. “There is a place for both passive and active managers, but an investor needs to know what he wants and how his portfolio is constructed.
“We urge clients to revisit their investment strategy [before there is a major event], because if they make a move as a reaction to an event, it is already too late,” Schreiber said.
“Clients have to get their risk tolerance correct,” agreed Alexander Joyce, CEO and president of ReJoyce Financial LLC in Indianapolis. “Of course, the client wants to grow [the portfolio], but no one wants to lose.