Getting Past the Fog

Getting Past the Fog

We sat down with Jeff Mortimer, director of investment strategy, BNY Mellon Wealth Management in Boston

Fiscal Cliff 2.0

-The fiscal cliff issues were “solved” in December regarding the tax portion, but we still face the spending cut part of the cliff.

-On the investing side, just like the fiscal cliff itself, those who waited for resolution and then invested, lost out when markets went up 16 percent. Prior to resolution, it was worry after worry after worry. But, markets are well aware and clients who wait for resolution may be late getting back into the game.

-The economy is moving towards recovery, jobs are being added and housing markets are improving, so the underpinnings are decent.

The Good, the Bad and the Ugly

-When clients compose a mental list of the things that are good and not-so-good with the economy, the not-so-good part is always longer. So, have clients focus on the strength of what’s on the good side. When clients ask, “Why would I ever invest in this environment?” Jeff’s response is not to make one move at a time. Think about 1999 and what that list would have looked like: Things were right in the world and the good side of the list was lengthy. But, look what happened in the market two years later.

-What does history teach us? All investments have risks—the risks are just different. Even cash has risks; is a client willing to watch inflation go up and willing to lose purchasing power? As for Treasuries, is a client willing to buy a bond, hold it for 10 years, get 1.8 percent each year and eventually be willing to accept negative returns?

-As for stocks, flows just changed and there’s a movement into equity funds. Markets have doubled, and clients have perhaps starting to come back in.

Confront Emotional Decisionmaking

-When things aren’t that good in the market, it may be a good time to be a good investor. But, the “worry drag” is incredible and clients aren’t receptive.

-To invest in an environment like this is against human nature. Last fall, clients were waiting for the other shoe to drop before they got into the market. Jeff advised his clients to have a contingency plan.

-Clients need to understand that they can’t wait for everything to “go away.” Jeff favors educating clients against their emotional backdrop. Clients need to play the hand they’re dealt, use history as a guide and work with their portfolios.

-Human emotion is the enemy of proper investment technique. It’s still a client’s money. It’s still his decision. But he’s going to have to go along for the ride.

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