Volatility in markets leads many to reaffirm
investment plans

Lance Henderson

Tim Villhauer, a financial adviser with Edward Jones in Fairhaven, has a crystal ball on his desk.

While many of his clients wish he could see the future in that ball, it simply bears an inscription that reads: “If you can not predict the future, you must plan for it.”

But developing a financial plan these days can seem difficult with the stock market’s jumping up and down every day and uncertainty dominating the economy.

One of the people Villhauer is helping to plan for the future is Brad Bytnar, owner of Jerns Funeral Chapel in Bellingham.

Bytnar, 34, said he is currently invested in Lord Abbett, Goldman Sachs, Global 45 Split Corp., Barclays and some oil.

“I picked these companies because they seemed to have a good return and good standing, and with them I have an aggressive curve for long-term growth,” he said.

However, he said he avoids watching or listening to mainstream financial news at all because it just brings him down.

“It’s all doom and gloom … I know the market will come back around,” Bytnar said.

Instead, Bytnar said, he takes investment seminars, reads articles from the Edward Jones Web site, and regularly interviews his financial adviser.

“I interview him on a regular basis to see what he is advising people to do and then I do my homework and make a decision on my own,” Bytnar said.

In the aftermath of 2008, when the stock market lost nearly 40 percent of its value, financial markets present a mixed bag of danger and opportunity depending on the individual investor.

But regardless of age or situation, lots of people are calling up their financial advisers to find out what they should do now.

Back to basics

To put the stock market’s volatility into perspective, Villhauer said normally the market will spike up or down approximately 3 percent a few times a years, but lately it has been happening a few times a week.

He said in the course of normal market cycles, the market is the most erratic toward the bottom of the cycle.

“The stock market goes down every so often, but when we are in the bottom of the trough—that is where you normally have the most volatility and that is exactly what we have been seeing,” Villhauer said.

However, Villhauer said volatility is easily combated with a sound, long-term investment plan. To achieve this plan, Villhauer said he must find out where the client is financially, where they want to go, and what is their tolerance for risk before he can create a strategy that can be modified along the way.

“One of my jobs is to help people stay on track and not make the common mistakes,” Villhauer said.

Mark Wallace, a financial adviser at Bay City Financial Services, agreed that helping clients stick to a strategy is a big part of his job. He said he has been in some form of communication with lots of clients who were caught by surprise when the stock market doled out heavy losses last year.

“Part of it is just getting back to basics and finding out what the plan is,” Wallace said.

Wallace said an inspection of assets and liabilities can show where a client is and then he can help get them get to where they want to be.

“That way you can see how you are spending and where your income is, and then formulate a plan for what is going to happen in the next several months,” Wallace said.

Saving people from themselves

Most people have heard the old adage: “If you can’t stand the heat, get out of the kitchen.” Villhauer said that saying especially applies to the current financial markets.

“Some people think they can handle the heat, but right now, we’ve got pots of water boiling over and flames shooting out everywhere and suddenly they realize they can’t handle the heat,” Villhauer said.

He said that when the market gets rough, investors have the tendency to get scared and pull their money into safer, lower yield investments, which leaves investors buying high and selling low — the opposite of a more popular stock market adage.

“People do panic and get out near the bottom of the market and then they buy again at the top,” he said. “However, most people are just making some modifications, not completely changing their strategy.”

Villhauer said if an investor has a firm grasp on where they are and where they want to go, a solid plan on how to get there remains solid even in the face of a recession.

“We can modify things a bit to create a path for their investments, and sometimes we go a bit to the left and sometimes a bit to the right, but we don’t want to gut out the whole strategy.”

Wallace said he often feels that his job is to save people from themselves.

“A lot of people are in danger of looking in the rearview mirror when making decisions about their future,” Wallace said. “Now is the most critical time to break that rearview mirror off and look ahead.”

Wallace said when so many bad things happen at one time, it really rattles investors.

“To have one year when not only did markets lose money, but our economy is in turmoil, people’s homes are losing money, people are worried about their income and whether they will even have a job,” Wallace said. “All these things at once, in such a short period of time, is really what has caused this volatility. There are just a lot of scared people wondering what they are going to do.”

Developing and maintaining your personal investment strategy

Just about every financial adviser will tell you that there is no one-size-fits-all financial advice.

Villhauer said it is extremely important that he get to know all of his clients, so he can accurately advise in their interest. To do this, Villhauer employs a risk tolerance questionnaire, financial planning software and in-depth interviews to learn about the client’s values and where they want to go with their investments.

“You have to know a lot about the person. If you don’t, it would be like a doctor knowing nothing about a patient, but saying they need this new pill,” Villhauer said. “It might be a great pill, but it might not help them.”

Wallace agreed that knowing the client is critical to success.

“I met with someone today who is 25 years old, and a conversation with them is going to be different than with another person who is 65 and semi-retired,” Wallace said.

Wallace said younger investors are building the assets that will sustain them through retirement, and older investors are managing and slowly drawing down investments throughout their retirement.

“The story that we have for the younger people is that right now is an incredible opportunity to buy American companies at large discounts,” he said. “But for those people who are close-to or in retirement, we are talking about what to do to preserve wealth and make sure that they have income sources to fund their retirement. For those people, it is a much scarier time.”

Financial advice from the pros

• Formulate an investment plan based on where you are and where you want to be
• Don’t panic or let a short-term event negate a long-term plan
• Now (near the bottom of the market) is a great time to buy stocks
• Diversify: Invest in different things that have low-correlation, so as one does poorly, another performs well, improving your overall financial outlook
• Be prepared: Have liquid assets available for job loss or emergencies
• Stay informed about investments, but periodically meet with your adviser to get some perspective on news reports
• Establish your risk tolerance early to help guide investments