Advertisement
Annual inflation dropped to 3% in June, according to the US Bureau of Labor Statistics. A month later, the unemployment rate was 3.5%, only slightly above the lowest level since 1969.
After more than a year of gloomy forecasts for the US economy, some experts have backed off recession predictions, certified financial planner Kate Dore reported for the finance and business network CNBC. “Strong labor numbers, falling inflation and other economic data may suggest the economy is heading for a soft landing,” she reported.
The US Census Bureau reported this week that the percentage of Miami metro-area residents earning over $100,000 increased from 28% to 35% between 2019 and 2022.
So, in a conflicted “maybe yes, maybe no” economy, what are local financial planners telling their high-net-worth clients?
Brett Horowitz, a financial advisor with Evensky and Katz / Foldes Wealth Management, with offices in Coral Gables; Lubbock, TX; and Seattle, told Miami Today that “we are advising clients to take advantage of the gains in their portfolios by either rebalancing … (selling stock funds to buy bond funds) or setting aside cash for upcoming expenses.
“To be clear, we are not predicting an imminent decline, but are simply trying to take advantage of a market high point. While some clients may think of this as market timing, we disagree,” Mr. Horowitz said.
“We are not trying to predict the future and sell in advance of a decline,” he said. “We are reacting to the past and selling after a nice rally, something our rebalancing software is telling us to do so that we remain unemotional.”
For clients who may need cash in the next 12 months, Mr. Horowitz said, “We are recommending that they sell stock funds and use this cash to set it aside in a money market fund earning over 5%.
“That way, if the market does decline, they won’t have to sell anything over the next 12 months at an inopportune time.”
For reluctant clients that have cash on the sideline waiting for the anticipated recession that hasn’t happened, “we try to gently implore them to see the fault in their strategy.
“We know that no one likes to invest money just before the market drops, but that’s the challenge, because it is impossible to predict and this is the exact definition of market timing,” Mr. Horowitz said.
“It’s the reason why 95% of stock funds underperform the S&P 500,” he said.
“If it was easy to see that the market will drop in the future, it would be far easier to beat the stock market because the S&P 500 doesn’t involve buying and selling. Instead, it just follows the economy and stays fully invested at all times.
“We recommend that clients think of investing as a 5- to 10-year commitment. In any one year, their money could be down 50%, up 50% or anything in between.
“The math is on their side, though, as the market is generally up three out of four years, so taking off a year to invest is generally hazardous to their wealth.
“But, if they were to invest over a 10-year period, they would have a 99% chance of making money over that longer period of time,” the wealth manager offered.
“Another approach we can suggest is for them to set up a plan to dollar-cost average their funds. For example, I will invest 10% of my cash every month for the next year.
“That way, the client will pick up the ups and downs, minimize regret, and have a sound strategy that does not rely on a ‘finger to the wind’.”
Mr. Horowitz cautioned that “it’s important to understand that we will not know we are in a recession until six months have passed and a recession has been called. By that point, markets will likely be close to the bottom.”
The wealth manager with more than two decades in the business said that “if anyone were to wait for a recession to be called and then invested their money, they would be late to the party and have missed the upside already.
“Why? Because the markets are looking forward, and if all the bad news is happening now, investors start to get very excited that there will be better news in the future.
“As a long-term investor, I frankly don’t care what the markets do this year or next year because when I need my money in 30-plus years, all I care about is that my money will be significantly higher than it is today.
“I can also guarantee that I will have no memory of what the market was priced at 30 years ago.”
https://www.miamitodaynews.com/2023/09/19/where-well-off-investors-can-turn-in-a-so-so-economy/
