Staying the course during a downturn | Erik Averill, Brandon Averill | AWM Insights #3

Episode Notes

In times of uncertainty, it's human nature to try and control things - specifically within investing. Some of the most frequently asked questions we've received from our clients are: "Should I be reacting right now to try and stop the bleeding?" or "What are ways to utilize this market downturn to turn a seemingly bad financial situation into a good one?" We've also consistently been asked "Is this downturn different then all previous ones?"

Ben Carlson compiles some important stats in his recent blog post noting that while the U.S. stock market is currently down roughly 32% from all-time highs, that the market falling even up to 40-50% from previous all-time highs has been a fairly common pattern all the way back to the 1920s.

So what should you be doing during this downturn? And what should you be expecting your wealth advisor to be doing during this time? Are there any mitigating steps your advisor should be taking right now that will help to keep your portfolio diverse and set you up for the best possible outcome in the future?

Brandon and Erik discuss these questions and more in this week's episode.

+ Read the Transcript

Erik Averill (00:00):
Hey everyone. Welcome back to AWS insights. I'm your host, Erik Averill. I'm joined again by my brother co founder and certified private wealth advisor, Brandon Averill. Brandon, welcome to the show. Brandon, We know that we are in the middle of some very interesting times and it's these times of uncertainty that us as humans, uh, fall back to trying to control things and specifically when it comes to investing, one of the questions that we continue to hear over and over and over again as is like, what should I be doing? The markets are falling. Is there something that I should be doing to essentially a stop the bleeding or turn a bad situation into a good situation? And you know, is this different? And so we've heard some, some crazy stats, uh, being published by, uh, Ben Carlson over a, a wealth of common sense, which is a fantastic educational blog that, uh, the us stock market.

Erik Averill (01:07):
It's currently down 32% from all time highs. Um, but the interesting thing is, as stocks have fallen by this much or worse, roughly every seven years, going back to the 1920s, uh, he also shares that stocks have fallen 40% or worse. This happens about every 15 years, and then they get cut in half, about 50% once every 18 years. And so, uh, this isn't new, but really the question becomes, is it different? And because it's happened before, uh, Brandon, is there something that I should be doing and falling markets since we've seen this happen before? Is there something that I can control? What would you say to that?

Brandon Averill (01:45):
Yeah, Eric. I mean, I think the stats are fascinating. Uh, definitely gives us some historical context around this has happened before. Uh, we're not going through something brand new. Uh, the markets have reacted to crisis in the past and I think falling back to the, the other fact is that after these declines, we've also gone on to hit all time highs every single time. So, uh, trying to predict when these things are going to happen. I think, you know, you quoted a lot of averages there. Nobody knows when this stuff's going to happen. They never know why. Uh, anybody that tells you that they do is pretending or you know, hopefully not, but might be lying to you to try to sell you something. Um, the real adage or the real Sage advice comes, you know, there's a great Warren Buffet quote. The trick is when there's nothing to do, do nothing.

Brandon Averill (02:38):
Uh, this is something we try to remind our clients of. It's not easy. This is an emotional period of time. Uh, we would never suggest that that looking in your account and feeling no emotion is the way to go. Uh, but we've tried to through really good times remind clients to stay diversified, stay the course, not try to outsmart the, we don't want clients, you know, getting too hyped up when things are going well. And this time shouldn't be any different when we have a falling market. Um, you know, there's, there's an additional court that I think makes a lot of sense to fall back on from Charlie Munger, who's Warren Buffet's business partner, uh, that if you're not willing to react with equanimity to a market price decline of 50%, two or three times a century, then you're not fit to be a common shareholder and you deserve the mediocre result you're going to get compared to the people who have do have the temperament and who can be more philosophical about these market fluctuations. So, uh, I think this just goes back to point a really, you shouldn't be doing anything during these markets other than being patient, understanding where you're at.

Erik Averill (03:44):
So I hear you, Brandon, telling me to, to not be emotional, to stay the course, to really sit on my hands and to do nothing. That's really hard to do just from a human level, but, but say I have ice in my veins of the other question I have is, is that the same advice of what my advisor should be doing? Because ultimately I'm a part of why I, at least I believe I'm paying for financial advice, is hopefully they have some tools in their toolbox to take this bad situation and make it a little less worse. What should I expect of my advisor? Are they going to be doing nothing as well?

Brandon Averill (04:24):
Great question, Eric. And, and the answer is no quickly, uh, but I certainly don't suggest that, as I mentioned, this should just be a flippant thing. Uh, it's not easy. Um, and so this really goes back to what your advisor should be doing. Uh, we visit our previous at AWM insights about rebalancing. Uh, we'll hit on a future one in, uh, AWN insights. We'll hit on tax loss harvesting. That's something your advisor should be doing. But really to that point is coaching. Your advisor should be coaching you. This isn't something we can do alone. It's not, look in your account, have ice in your veins. Turn off your emotions. That doesn't work. Uh, it's like bad habits, right? You need a coach. A lot of us have coaches and, uh, we've for those that applied sports and understand the importance of coaching, so your advisors should be coaching you through this period.

Brandon Averill (05:14):
And you know, really when we coach our clients, there are a few things that we, we certainly believe are true. And this is what we're coaching them on currently, is that the entire world's in this same boat. Uh, it's not like, Hey, us in the U S are going through this and the rest of the world isn't. There's a global pandemic. Um, the world is not going to end. Markets will not fail. We're seeing that markets are actually working really efficiently the way they should be. Additionally, markets will come back. They always do. As I mentioned, after these declines, they've always come back to an all time high. They cannot go to zero. Um, and then the government is going to step in, you know, and they're going to create plans to help rescue our economy here in the U S many won't work.

Erik Averill (05:58):
but enough will and you know, if they don't work immediately, the fed and others are gonna keep trying until they do work. Uh, so this really leads all back to the belief in that stocks are gonna outperform bonds over time. Ons are gonna outperform cash. So we just need to coach our clients through this period. Brandon that's super helpful. And so, you know, th the action I would say for the listeners at least that, uh, that I'm hearing and I'd summarize from you, Brandon, is, you know, from a, from an investment standpoint is that we need to stay diversified. Nobody can predict a future. Um, we need to control our costs. Those are the things that we can control. We can constantly be minimizing taxes so that we're maximizing the after tax return that hits our pocket and that ultimately we need to stay the course.

Erik Averill (06:47):
And so the last thing I'd say as we sign off is, is us as a human race, we are very resilient in that. We know specifically here in the United States that us as Americans, we have the spirit to Raleigh and we will absolutely get through this crisis. And so we, uh, appreciate the time that all of you listeners have given to us. We, we think the clients that, uh, that are listening in for the trust that you put in us and our promises is that we will stay the course. We will get you through this. And until then, have a great day and we will talk to you on the next episode of AWM insights.

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