Kevin Kern
by Kevin Kern

Founding Partner

Today’s investment commentary by my colleague David Lieberman reminds us just how hard being a long-term investor can be.   Natural disasters and political forces can derail our plans.  Volatility has re-entered the markets.  And as we say goodbye to the summer, this would be a good time for clients to re-examine their long-term goals and the levels of risk they are will to take to achieve them.

Stock market corrections happen more frequently then you might think.  Since 1900 a correction of 10% or more occurs about once a year on average. Corrections of 5% take place about 3 times per year.   We all understand that corrections are simply a part of the market cycle until we start to speculate that, “this time is different”.    500-year flooding and missile lobbing dictators tend to make us believe that yes, this time could be different when actually it isn’t.  There have always been reasons not to stay invested.

I started in this industry in the spring of 1987.  Each year since, there have been reasons “not to stay invested”.  Below are 30 Reasons not to invest since I began my career.  I’m sure many of you can come up with much more.

reasons not to invest since 1986

On January 1, 1986, the S&P 500 was at 211.28.  Thirty years later on December 31, 2015, the S&P 500 was 2,043.  That would equate to an annualized return of 7.86%.  At the time, each one of these reasons seems to be game changers.  Staying invested and managing the current risk was always the way to proceed.

Over the years I have found that there are three very productive ways to help clients stay invested over time.

1) During the trying times, make sure that you have enough cash in your reserve funds so that you are never tempted, or in need for selling long-term securities to pay the bills.  Increasing your cash reserves can go a long way in making volatility more tolerable.  12 months of reserves are not out of the question for some clients.

2) In addition to increasing your reserves, reducing your stock allocation may also provide comfort during more volatile times.  This decision should be weighed against your long-term growth needs and current market conditions.  Our Wealth Advisors can run portfolio composition projections showing the potential impact of increasing or decreasing stock and bond allocations over time.  Of course, these projections are based on prior market history, but it gives clients a starting point for better portfolio allocation decisions.

3) Finally, introduce dividend stocks into your portfolio.  It may be tough to trim your FANG (Facebook, Amazon, Netflix, and Google) stocks but solid dividend stocks can help support a portfolio when markets swoon and potentially add to your overall total return over time.  Together, dividends along with price appreciation (total return) have been a significant driver of stock market generated wealth.

s&p

 

Source: Bloomberg

Using the S&P 500 in the above example, since 1940, the total return for dividend-paying stocks has outperformed non-dividend paying equities.  When dividends are reinvested, the out-performance is even greater.

If you would like to discuss the proper cash reserve level, dividend investing or have a portfolio allocation review please give us a call at 201-447-3400.

 

Disclosure:  Portfolio diversification and dividend producing securities cannot eliminate the chance of portfolio loss.  Nor can they guarantee greater overall return over time.

 

The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.