Stick To the Plan

Matt Wright, CFA® |

While the media is filled with content that might make you think that chasing the current hot stocks or predicting the economy is the path to financial success, our views at Summit Wealth Advocates are different. We believe that creating a long-term plan toward reaching your financial goals and then sticking to that plan (with periodic reviews of progress and changes in goals) is what will drive most of the results for our clients over the decades to, and through, retirement.

The year 2020 has been a chaotic year (and it’s only half over!) in the financial markets, not to mention our daily lives. Global stocks plunged historically fast in February and March, only to recover surprisingly fast since then. Investors were faced with many difficult decisions as the question that arrives during every crisis popped up yet again: “Is it different this time?” So what did SWA do during this volatile period?

We stuck with the plan.

In March, while stocks were falling, we rebalanced client portfolios by selling bonds and buying more stocks. We harvested tax losses that may reduce tax bills for clients next April, varying by individual situation.

We didn’t know it at the time, but these opportunities were at their maximum advantage for a very brief window. We did not predict what was to follow - that stocks would have just as incredible a rise as the fall before it - we simply stuck with our discipline in managing portfolios. We believe this discipline helps keep clients on the path toward their goals over the long run, but there is no guarantee that they will play out favorably in any short-term period.

In more recent weeks, as stocks have rebounded so strongly, we’ve actually gone in the opposite direction, rebalancing client portfolios by selling stocks and buying bonds. Again, we’re not making predictions, we’re just abiding by the agreements we’ve established with clients to manage their assets to a desired level of risk.

We stuck with the plan.

One other factor in our portfolio management that doesn’t get discussed a lot but was critical during this period is discretionary authority. This is the authority that clients give us to trade in their accounts based on a pre-determined strategy but without having to get the client’s approval before each specific transaction (which was common in the industry in the past.) During the volatile weeks in March, SWA submitted substantially more trades in client accounts than a typical month, in order to implement the rebalancing and tax-loss trades mentioned above. Had we needed to reach out to all of our clients to get pre-approval for these many trades, it simply could not have been done. Not to mention that if we had called each of our clients and told them we wanted to buy stocks in the middle of March, many of them would not have agreed to do it. SWA is here to keep clients on the plan, through good times and bad.

While discretionary authority for financial advisors is very common nowadays, it does require clients to trust in their advisor to implement the investment strategy. We appreciate the trust our clients place in us and hope to maintain it by acting in their best interests.

Do you have a plan?

If you don’t have a plan, you may find it challenging to identify and reach your goals.

Stick with SWA.

We have a plan.