HCR Wealth Advisors: Letting Breadcrumbs Guide You Through Volatile Markets

Whiplash. We’ve gone from giddy highs to endless freefalls in sixty days. And it’s come totally out of the blue.

When the new year began, there were concerns about financial markets being overvalued. Stock markets would continue to grow to record highs, after rising nearly 20% from their October 2019 lows. Most financial and investment advisors like, HCR Wealth Advisors, had already gone relatively conservative in their asset allocations in clients’ portfolios.

But Coronavirus? That wasn’t on anyone’s radar. Yet the volatility it has since provoked – based mainly on uncertainty – has become a source of generalized stress and anxiety.

Premier stocks like Apple issued warnings that they would miss revenue forecasts because of manufacturing delays. Factory closings in China virtually shut down its economy, thus ensuring supply chain disruptions and inventory stockouts in the U.S.

And we haven’t even factored in the concerns over the dangers of the disease itself. Our sense of normalcy has been severely shaken. Anyone watching the markets over the past few weeks (since “COVID-19” became a household word) has suffered repeated bouts of whiplash.

How does that affect you, the individual investor, though? If most of your savings are sitting in IRAs and 401(k)s – supposedly growing safely in the background – you’re watching their value seesaw madly.

You may have a financial advisor like HCR Wealth Advisors, with whom you have locked down a safer long-term investment plan. Still, it may be hard to ignore the conflicting comments experts have made. Every online and cable outlet screams the latest market movement, so it wouldn’t be surprising if you felt moments of doubt or concern.

What Extreme Market Volatility Looks Like

In early February, as the potential market risk of Coronavirus was taking hold of our consciousness, noted economist and Allianz’s chief economic advisor, Mohamed El-Erian said the virus was “a fundamental shock to economic growth in China” and would overcome the U.S.’s positive market sentiment. His recommendation after a 603-point dip in late January was to resist the inclination to buy any dips related to China.

Towards late February, all three markets – the Dow Jones Industrial Average, S&P 500, and Nasdaq – had fallen over 10% from the recent 52-week high. They had suffered a textbook correction. Something had spooked investors out of stocks and into the traditional safe havens.

For five straight days, markets tanked over concerns about the unknown impact of COVID-19. By the end of February, all three were down more than 12%, but not without periodic upswings to highlight the volatility.

But let’s put things in perspective. There have now been 27 market corrections since World War II. They typically involve nearly 13% declines and bounce back somewhere around four months later.

But if this were to turn into a bear market – which is a 20% decline – CNBC says there have been just 12 since World War II. They averaged a 32.5% decline, typically last 14.5 months, and take two years for a full recovery.

As HCR Wealth Advisors points out, though: SARS, H1N1 (swine flu), and Ebola all had scary headlines and dire projections. But they ultimately passed and, in hindsight, provided future buying opportunities to clients.

What Financial Expert Should You Believe?

Nonetheless, this decline was the fastest in history and – as expected – panic followed. Many were looking to experts for orientation on what to do.

Wharton School professor Jeremy Siegel suggested buying the dip because it is a one-year shock, but the markets will recover. He reminded investors everywhere that markets always bounce back eventually.

Billionaire investor and Omega Advisors founder Leon Cooperman advised individuals to avoid panic, but not to do margin buys to benefit from recent lows. “Just know what you own and be patient.”

Jim Cramer, CNBC’s ‘Mad Money’ host, warned against margin trading but suggested buying the dip if an investor can afford to.

ALSO READ Goldbucks Cash For Gold Becomes The Best Place To Sell Old Jewelry

And now, 30 days from his last recommendation, Allianz’s Mohamed El-Erian has changed his tune. Now he sees some good picks for professional short-term tactical investors, although not for unsophisticated, long-term investors.

There is no clear consensus. But if you have someone like HCR Wealth Advisors standing by your side to answer questions, it will help.

The Path Forward in Likely Volatility

You and your trusted financial advisor may agree to ride things out. Or, if you trade on your own, you may feel the waters are too turbulent to jump in. In either case, you’re going to witness your portfolio swing up and down, at least until it the market finally bottoms, rebounds, and stabilizes. And the closer you are to retirement, the more those swings are going to worry you.

What can you do to make day-to-day life less stressful as you wait for a return to normalcy? Change your perspective. Don’t focus exclusively on the ups and downs of your portfolio. Instead, look at it within the context of your net worth, where your other assets provide some stability.

As part of their service, financial advisory companies like HCR Wealth Advisors feel a duty to educate and empower clients, providing them with the knowledge to sleep well at night. Defining and monitoring clients’ net worth is a small part of that.

But, as an investor in turbulent times, there is added value in you taking one more step: calculate your own net worth and do it with whatever frequency brings you peace of mind.

Why would that help? Regardless of how much of your retirement nest egg is made up of at-risk assets, your other assets will help buffer the ride. It is reassuring to see your stock portfolio resting on a foundation of cash, home equity, and other stable assets.

As you update your net worth regularly and the numbers go up and down – especially when they go down – you will be creating a trail of ‘breadcrumbs.’ Once the China-born disruption has ceased, the world catches its breath, and our economy starts coming back to normal, you will recognize the path back up to your original position of January 2020.

(Breadcrumbs may not have helped Hansel and Gretel find their way back home in the Brothers Grimm fairy tale, but they will make your path back feel far more familiar.)

How to Calculate Your Net Worth

Let’s start with a definition: net worth is “what you own minus what you owe.” In financial terms, it equals all of your assets, minus all of your liabilities. If the result of that calculation is a positive number, you have a positive net worth. If it is negative, you have a negative net worth.

Calculating your net worth, especially if you do it regularly, lets you measure any changes over each period, whether it’s monthly, quarterly, or annually.