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Planning & Economy

Two Decisions

May 30th, 2019

So by hook, crook, luck, or fantastic insight you decided in the fall of 2007 to liquidate your portfolio and go to cash. Boy, did you look smart or what?

You put your money in Certificates of Deposit; they are FDIC insured to the account’s limit. You feel vindicated when the equity market, as defined by the S&P 500, drops from it’s high ($1,576) in October of 2007 by about 57% to it’s low ($666) in March of 2009, devilish, huh?

Had you been a savant, or just lucky you might have put your money to work in a mutual fund that seeks to follow the S&P 500 index in early March of 2009, and today you’d have approximately four times (4X, 400% gain) your money.

If you held the mutual fund that seeks to follow the S&P 500 index through the great debacle you would have gotten even, (reached the October 2007 market high), around April of 2013, around five and half years later: What a grind, huh? But, your investment would have gained, if still invested in a mutual fund that seeks to follow the S&P 500 index, almost two times the value it was worth in October 2007: not bad, huh?

But, it’s now 12 years later, and you’re still in CDs. Too paralyzed by world and domestic events, market volatility, the financial press’ constant bombardment of negative “market-moving” news, the tweets, the confusion, the total exasperation, unbelievable uncertainty, fear, and so, you have done nothing.

Today the market is flirting with posting a new record high. What advice should we give the person who has been in CDs since October of 2007?

  1. We would be mindful of the circumstances: there was no strategy involved in exiting equities in the first place. There was fear of prices falling, certainly, but no thought given to a methodology for reinvesting in equities. If you get out, when do you get back in? The second decision. Emotions ruled the decision, not strategy nor method.
  2. We would put the money in question in context: what are the goals, objectives, concerns, and fears; what is this money for: we would help the person develop a plan, a strategy for how to employ the funds.
  3. We would help the person place their fear in context by helping to define their risk: how much fluctuation are they willing to tolerate to achieve their goals: My-Risk-O-Meter®.
  4. Once in context, the funds would be invested, opportunistically, as appropriate for each type of investment.

From time to time, we as advisors have had discussions with our client’s about the wisdom of selling equities in favor of cash: most of the time, the request to do so comes after equities have dropped and fear has taken hold. As portfolio managers, there are times when we change allocations, sometimes significantly increasing cash or assets with lower correlations to the price movement of equities. The difference is that when cash increases as an asset class in our portfolios, we have a means by which to make The Second Decision….

When you get a minute try out our risk discovery tool – tell your friends

https://windsorwealth.management/my-risk-o-meter/Wealth Planning Near Me - My-Risk-O-Meter IMG

Our portfolios are fully invested

Carlos Dominguez – Portfolio Manager, RJFS



Thompson One

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Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. Investors cannot invest directly in an index.Past performance may not be indicative of future results. Every type of investment, including mutual funds, involves risk. Risk refers to the possibility that you will lose money (bothprincipal and earnings) or fail to make money on an investment. Changing market conditions can create fluctuations in the value of a mutual funds investment. In addition, there are fees and expenses associated with investing in mutual funds that do not usually occur when purchasing individual securities.

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