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I’m a new investor. What should I do?

Newer investors are experiencing their first big market decline. Kevin Grogan reminds us: just breathe, stay disciplined and stick to your plan.

Transcript

Tim Maurer:
Hello and thank you for tuning in to Ask Buckingham an ongoing video podcast series where we invite thought leaders across many disciplines in wealth management to respond to the questions on your mind. My name is Tim Mauer and I have the privilege of hosting these short Q and A discussions as the Director of Advisor Development for Buckingham Wealth Partners. And I want you to know, that I’m also a wealth advisor with more than 20 years of experience and a client of the firm.

Tim Maurer:
The volume of information coming at us these days is so vast and the pace at which that information arrives is so fast, that it’s a struggle to keep up with what you need to know to make the best decisions for you and your family. Our hope therefore, is that this ongoing conversation will become a source of clarity in the midst of confusion and provide insight that helps you better understand what’s going on in the world financially and otherwise. Today, we’ll be hearing again from Kevin Grogan, Buckingham’s Managing Director of Investment Strategy and here’s the question we’ll be tackling. Kevin, how should I be responding to what’s going on in the markets today if I’m a new investor?

Kevin Grogan:
I think that the best thing a new investor should do is number one, take a deep breath as this is likely, if you’re a new investor, the first really big market pullback that you’ve seen, certainly the first time you’ve invested over the past 5 to 10 years is the first time you see the market decline as much as it has here recently. So the first thing for a new investor to understand is, that this is unfortunately normal. This is likely to be the first of several of market pullbacks that you’ll see over your investing career, if you want to think of it that way. And so the best thing you can do is, to stay disciplined to your investment strategy and stick with that plan over the long term, because we’ve seen over long stretches of time that stocks tend to do better than cash and they tend to do better than safe bonds.

Kevin Grogan:
And so the best thing you can do is, stick with the stocks in your portfolio and stick with your long term investment plan. The other thing that comes to mind if you’re a new investor and not even specifically necessarily related to the investment side, but if you do have any debts, you could take advantage of this opportunity to potentially refinance those debts at lower rates. Could be something to consider if you have a mortgage or other debts. We have seen interest rates come down over the past few weeks, so that might be something to look into as well.

Tim Maurer:
Yeah, well Kevin, I get this longer time horizon so it totally makes sense and I do think that a new investor would be put more at ease, but isn’t it also true that each of us individually has our own kind of capacity or willingness to take on this risk? What would you say to a new investor who simply feels squeamish looking at all the volatility in his or her portfolio these days?

Kevin Grogan:
Absolutely. And that’s a totally understandable reaction to what we’ve seen here recently. And so it’s important upfront, to be honest with yourself, and if you have an advisor, be honest with your advisor about how much risk you’re actually willing to take within the portfolio. Because the only plan that works for you is a plan that you can stick with. So, it’s important to stick to your asset allocation both in good times and in bad. And so if you’ve gone through this experience and you realize that this isn’t comfortable for you and then it’s causing you stress or causing you to lose sleep, then it’s likely worth changing your asset allocation to something that’s more conservative than where you are today.

Kevin Grogan:
Because you need to be able to live with this allocation in both good times and in bad. So if you’ve gone through this experience and it’s causing you so much stress that it’s keeping you up at night, then it’s likely an opportunity for you to have a conversation with your advisor about potentially changing your asset allocation. And a good advisor, can also work with you to determine how much risk you need to take in order to achieve your goals, because that’s another important part of the conversation that would need to happen when you’re coming up with the appropriate asset allocation.

Tim Maurer:
Sure. Now, Kevin, of course, in terms of application, not every new investor has a financial advisor, may not have access to them. They may be just looking at their 401k. What would you recommend to that new investor as they glance at their 401K these days in terms of application of this knowledge?

Kevin Grogan:
Yeah, I think the best thing is sticking with your targeted asset allocation. So whether you’re working with an advisor or not, I think it’s important to draw up an investment policy statement. It doesn’t have to be anything fancy or formal. It can be, here’s my target allocation between stocks and bonds and when, if stocks drift up to this percentage or down to that percentage, that’s when I will rebalance my portfolio. And as long as you have a written investment policy statement, and it may sound kind of hokey, but even if you sign it, there’s good evidence showing that you’re more likely to stick to something that’s hard copied and signed, even if it’s just an agreement with yourself. I think that could help folks keep the discipline to their strategy. And so that’s a tip that you might take away if you’re not working with an advisor, is to still have a written investment policy statement that helps you keep the discipline to a particular strategy.

Tim Maurer:
Well, Kevin, it doesn’t sound dorky at all to me. To everybody outside of the sphere of wealth management who’s not working in this business, my guess is it does sound a little dorky, but at the same time I’m also-

Kevin Grogan:
That’s what I do. That’s what I’m trafficking, is dorky.

Tim Maurer:
Well you do it well. Thank you, Kevin Grogan, and thank you for tuning into this episode of Ask Buckingham. If you have a question that you’d like to see us address, you can do so by navigating to the website askbuckingham.com or emailing your question to questionataskbuckingham.com or just click the link that you see right there in your screen. Remember, there are no dumb questions, but unfortunately there are plenty of poor answers out there. Our hope is that in giving you straight answers to your questions, you’ll be able to apply that knowledge in pursuit of good decision making. So please follow us and by all means, ask Buckingham.

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