How Great Advisors Are Positioning Clients to Survive and Thrive Through this Crisis

The COVID-19 pandemic of 2020 has affected the United States and the world economy severely.  Due to social distancing measures undertaken voluntarily, the US economy is seeing massive impacts including high and rising unemployment.  The United States government has taken measures to mitigate some of the severe economic impacts of social distancing.  Most notably, Congress passed several major legislative initiatives, including the original $2 trillion CARES Act (Coronavirus Aid, Relief and Economic Security Act) as we wrote about in our article last week: Advanced Planning Opportunities Created by the CARES Act

In times like this, a great advisor can add tremendous value and help clients to navigate through the challenging markets and economic environment with thoughtful and timely guidance.  Neglecting the search for a great advisor can be detrimental to your wealth and overall security especially when the horizon is full of ominous clouds.

Once you find someone you can trust implicitly, someone who really watches out for you and thinks two steps ahead, the value of that advisor can be immense and far in excess of the cost charged and it can bring you more options and advice that can really add to your piece of mind and your ability to take advantage of opportunities created during this crisis.

How well Have Your Investments Done?

Warren Buffett says that “Only when the tide goes out do you see who has been swimming naked.”  One of the main reasons why you might not want to manage your own investments and want to work with a trustworthy and experienced financial advisor is simply because you are too busy.  A crisis like this can reveal weaknesses and vulnerabilities in your approach.  Was your portfolio balanced and diversified properly?  How well did it hold up? What opportunities can you take advantage of that make sense going forward?

Depending on your goals and the composition of your portfolio, an experienced and capable advisor can be invaluable to help you to evaluate it.  Find out whether you have the necessary time available to properly manage, maintain and update your strategy and portfolio consistent with your plan especially during this crisis.  Do you have the experience and research skills to identify those companies that will survive and thrive from those that might fail and become bankrupt?

If not, now is a wonderful time to make a move and hand off the responsibilities to someone who can position you to better participate in the recovery that is inevitably going to come out of this crisis.

There are two types of people, those who learn from their mistakes and take action and those who don’t.  The latter group allows inertia to keep them locked in to the same patterns of failure that led them down the wrong path.  Rather than learning and pivoting during crises and looking at their mistakes as feedback, this group refuses to make a change until their positions “bounce back” as if bad decisions and bad stocks owe them anything.

The other issue besides time, is that the opportunity cost of being too busy can be astronomical.  Think about all the people who have parked their money in cash because they have been too busy or uncertain to make long overdue decisions on how and where to put it to work to earn better returns.  In this sense, adding a good financial advisor to your team is potentially a one-time decision that can, literally, pay dividends for life. 

Interestingly, before this crisis came around, those sitting in cash were on the sidelines feeling at the end of last year that they had “missed out.”  Now that there is an opportunity to buy because the market is down from peak levels, they are probably still sitting on the sidelines thinking they don’t want to jump in now because the news is bad and they are predicting that the market will continue to fall.

The reality is that for most people, handing these decisions off to someone else is the smart move and the sooner they understand this and take action, the better off they will be.

Do You Have the Right Personality to Stay Logical and Rational During a Panic?

Stocks and bonds generally form the core of many people’s investment portfolios.  But there are also other areas such as income real estate, private equity, etc.  As you probably know, stocks can roller coaster up and down and tie an investor’s stomach in knots. At other times Mr. Market is lulled into slumber.

When the market falls severely as it has recently, emotions or lack of planning lead many to make very poor decisions injurious to your financial well being. You may deviate from your rational investment plan against your better judgement or long-term best interests. These are just a few of the emotional situations that affect everyone who invests in stocks.  Having a good financial advisor on your team can and does make many of these challenges moot.

Without exception, almost all of our clients have already recovered a good portion of their crisis values as the market has rallied.  They understand and are in it for the long-term as we explained in our recent video on Time in the Market vs Timing the Market.  We have even started to take advantage of opportunities being created by volatile markets.  Have you?

Do You Have the Expertise?

Knowledge and expertise is a big deal in successfully navigating any investment landscape but especially when the world is in crisis mode. Yes, one can make it simple by just keeping all your money in a bank savings account or in certificates of deposit. If you do that, however, your principal will be protected, but you’d be earning near zero and may never achieve your long-term investment goals.

Modern portfolios need a mixture of many different types of investments: common and preferred stocks, corporate bonds, cash reserves, real estate investment trusts as well as more sophisticated options that could include private income real estate, private debt and even private businesses to name a few. Some of these have peculiarities and idiosyncrasies that you need to know about in order to make intelligent investments. Do you have the skills to optimize your investments through rigorous investment research?

A great financial advisor will do the hard work for you and even bring new opportunities and perspectives to the table that you might never have uncovered on your own.

Ridgewood Investments has identified a number of compelling opportunities recently.  Talk to us to learn about and perhaps even take advantage of some of them before it’s too late.

Of course, some of you reading this may be looking at some of your positions having declined significantly, especially if you owned companies in sectors like energy and airlines (areas our clients largely avoided).  However, you don’t have to make it back the way you lost it.  Instead, think about harvesting your “tax losses” by selling lower quality positions and allow Ridgewood to position your portfolio in higher quality companies that will do better in the long-term.  This is the better way to recoup losses and start building back into gains.

Compounding: The Stakes are High!

If you are like most people, you want your hard-earned nest egg to grow at a nice rate. The earlier you start to put the power of compounding to work, the larger your assets will grow over time. It is said that Albert Einstein observed that compounding is the eighth wonder of the world. By reinvesting your periodic incremental gains systematically over the years, your balance can grow exponentially by the end. The financial “Rule of 72” states that you can predict the amount of time needed to double your investment sum by dividing your rate of return into 72. For example, if you invest your money at a 10% return, you will double your money every 7.2 years.

Be an Einstein with your wealth. By using the power of compounding and beginning your investment journey early, you really can amass a significant sum. A good financial advisor can help.  Unfortunately, many people procrastinate and miss out on a lot of the good that could be theirs.  A great financial advisor on the team can help you take action consistently and on a timely basis so that the power of compounding starts and stays working for you.

Good and Bad Financial Advisors

In the arena of financial planning and wealth management, there are good, bad and, in some cases, excellent advisors.  Obviously, if you are going to add a financial advisor onto you team of trusted advisors, you want to take the time to find the best advisors – those that you and others would eventually come to regard as excellent and invaluable additions to your team of confidants based on the value they add to your life and situation over time.

How do you discern the excellent ones?

Look for the following characteristics when evaluating the potential of working with a financial advisor:

  • Stability and Experience: You’ll want to narrow down your field to those advisors who have been in business for a while. How long is a while? They should be in business for at least a decade. You want an experienced advisor who has seen a thing or two in the markets. You want one who is focused on the long-term.
  • Fee-only: Financial advisors come in two flavors: Those who take commissions that you are never told about, especially upfront, and who are focusing on promoting sales of various financial products to generate their commissions versus those who work for you only for a fee that is disclosed to you ahead of time. Demand fee-only financial advisors.
  • Transparency: Interview the advisors. Do they foster education and believe in transparency? Do they invest the same way with their money as they would propose for you?
  • Philosophy: Do they have a consistent philosophy to the way they identify and approach their investments and their advice?  Can they explain this philosophy to you in a way that you can understand?  Does the philosophy make sense and stand the test of time?
  • Results: Do they have an established record? Have they grown?  Do they invest their own money in their strategies?
  • Customization: Do they have the ability to deal with sophisticated as well as more plain vanilla investments?  Do they tailor investments to the needs of each individual client?  Or do their portfolios all look roughly the same based on cookie-cutter and oversimplified asset allocation pie charts?

Now Is A Great Time to Start Working with a Capable Advisor

Remember the saying to “Never let a good crisis go to waste?”  

It may not feel this way, but right now is a good time if you have a significant sum saved but little time or expertise to manage it properly.  It is never too late to hire a great advisor and start taking advantage of the better advice and position your investment portfolio accordingly.

In addition, it is also timely because a great advisor can give you or update your comprehensive financial plan.  If you are a high income professional or business owner, there are strategies to save taxes that can immediately put money in your pocket.  Some of these strategies are simpler and others are more complicated, such as a 5 year carry back of losses. 

Taking advantage of these tax savings opportunities requires you to be proactive. A great advisor working with you and your CPA can through the financial planning process add tremendous value through tax savings especially this year when some recent legislation is creating additional tax planning opportunities that will expire by the end of 2020.

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