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North Bay Business Journal

Monday, May 20, 2013, 6:00 am

As markets climb, wealth managers stress long-term planning

Dow Jones index rises back from recession’s lows

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    John Whiting, Irv Rothenberg, Steven Jenkins, Eric Aanes

    NORTH BAY — While the Dow Jones Industrial Average’s record-breaking close above 15,000 was a highly watched milestone this month, wealth managers in the North Bay expressed caution. Those broader market gains are no doubt good for many investors, they said, but it is the ones with a long-term strategy who have stayed in the markets during the past few years of downturns that are reaping the greatest rewards.

    “If you missed that window because you wanted to get out of the markets and get back in when things got better, you did permanent damage to your portfolio,” said John Whiting, a partner with Moss Adams Wealth Advisors, about the partial but steep recovery in the months following the market lows of 2008 and 2009. “If you were able to convince a client to trim their fixed income and put it into the equity part of their portfolio — think about that. It takes some serious fortitude as an investor.”

    While wide market oscillations in the past few years have created an emotional ride for some investors, Mr. Whiting and other wealth managers said that the recent growth of the Dow and other indicators was something of a case study in the merits of a long-term investment strategy. Many have seen their portfolios recover and perform more strongly, but challenges remain to minimize risk and maximize returns at a time when large market swings appear to be the norm, they said.

    It was on Sept. 9, 2008 that news of the growing mortgage and financial crisis helped fuel a widespread market decline that included the largest-ever, 778-point slide in the highly watched Dow in a single day. It was considered a high-profile example of the devastating blows that investors endured in the recession, part of a downward trend from the index’s 14,164 closing high in October 2007 to 6,594 on March 5, 2009.

    While the shocks pressured some investors to flee the equity markets — and indeed, according to those wealth managers, some did — it also presented opportunities to buy equities at bargain prices and hope for growth in the coming months.

    “If you’re one of the people who got out when things crashed, then got back in, you paid for all that risk up front and didn’t get the reward,” said Irv Rothenberg, principal at Buckingham Asset Management. “Over the long term, that’s where the expected premium comes from.”

    The recent growth in equity markets has made investors more optimistic, but not all asset classes are growing at the same rate, wealth managers said. Low-risk securities like bonds are still delivering extremely meager returns, making some individuals question their inclusion as part of a diversified portfolio.

    The hunger for greater returns is adding up to a larger appetite for risk for some investors, with some seeing blue chip stocks as an alternative to bonds and similar assets, said Steven Jenkins, senior vice president overseeing trust and investment management at Exchange Bank. While investors could get lucky in the short term with that approach, Mr. Jenkins and others expressed caution that the added risk could lead to lower returns in the long term.

    “Right now, the savers have collectively developed this thoughts process of TIMA — There Is No Alternative,” Mr. Jenkins said. “Although the prevailing thought is that bonds are ‘bad,’ there is still a role for bonds in a portfolio.”

    He added, “Historically, when conservative investors move into stocks, that’s an indication that they are nearing the top of their run.”

    Mr. Jenkins and others noted that small-to-mid-cap stocks were outperforming blue chips in the current market, making it harder for individual investors to identify winning picks in their own portfolios.

    Also, despite the recent upturn in U.S. markets and a boost in optimism, other economic indicators suggest that there might be some surprises yet to come, said Eric Aanes, president of Titus Wealth Management.

    Mr. Aanes pointed towards the activity of the Federal Reserve, a stubborn unemployment rate, the challenges of the Euro-zone economies and a slowdown in China as signs that investors could see new turbulence in the future.

    “The U.S. is the only market that seems to be flying high,” he said. “While it may feel like the waters are calm, they can get choppy fast.”

    Yet in acknowledging the turbulence that investors have endured over the past few years, Mr. Aanes and others said that long-term outlooks remain positive.

    “People were concerned that they were going to have to work longer. That’s starting to change,” Mr. Rothenberg said. “It’s not that all of our clients are wealthy — they have a plan, and they stuck with it.”

     

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