Glimmers of Optimism By Lewis J. Walker, CFP(R)

Two front page headlines in the weekend The Wall Street Journal reflected rays of optimism symptomatic of brighter days as we “spring forward” into Daylight Savings Time: “Job Gains Ease Recession Worry,” “New Confidence Propels Stocks.” (March 5-6, 2016).

While any short term trend is easily reversed, we embrace the idea that the darkness of the mid-winter worry-driven slump was overdone. The Dow Jones Industrial Average (Dow) ended the week of March 4 down 2.4% year-to-date, but up from recent lows, having slumped 10% by mid-February. Upward sloping trend lines cheer worried investors, as does brighter sunshine at day's end, more time for late afternoon golf as courses green up and flowers appear in southern gardens.

The Journal pinpointed positive measures: the U.S. manufacturing sector looking up; the economy ended 2015 stronger than previously thought; consumers continue to spend. The latter is good news as spring brings out shoppers for everything from new homes to cars.

Nevertheless, data shows that investors remain cautious. We still could see wild daily swings in market averages as big speculative money sloshes around. Caution is a good thing, and markets are said traditionally to “climb a wall of worry.” Demographic trends suggest that “worry” is becoming a bigger factor in investor behavior and asset allocation decisions.

The leading edge of the Baby Boomer generation turns 70 this year at an estimated rate of 10,000 a day. A Gallup poll found that the average age of retirement rose to 62 in 2014, having risen for the third time in four years. When paychecks stop, outside of pensions (an endangered species) and Social Security (avoid starting payments at 62 if possible due to large haircuts), retired people look to their portfolios for their “paycheck.” Those turning 70 ½ this year (happy half-birthday Mr. or Ms. Boomer!) must start taking Required Minimum Distributions (RMDs) from traditional IRAs. This prompts more scrutiny of investment portfolio performance and nervousness over the daily yin and yang of Wall Street.

As advisers, we know that when a person opens a new investment account, they watch it more closely. We also know that no one can predict the “sequence of returns.” If portfolio values are up over time people are happy. But if they invest just before a market drop and see negative numbers for a period, anxiety understandably rises.

We know that periodically markets go through dips. A correction normally is defined as a market average being down 10% from a previous high. A "bear market" usually is defined as an average or index being down 20% from a previous high point. Investors still remember the 2008 "super bear" when market averages across the board were down in some cases 40% or more.

Some investors try to "time markets" but that rarely works as you have to make two good decisions─you have to know when to exit and when to jump back in. While a response to a market decline is an individual decision, most investors do better in the long run to continue to collect dividends for reinvestment while giving the portfolio time to recover in line with long-term growth expectations.

Every long-term asset performance chart shows peaks and valleys. Ditto for money managers, including some of the most legendary managers of all time. The greatest golfers do not win every tournament. Same for tennis champs. In baseball we look for positive batting averages as a metric, recognizing strike outs and foul balls as part of the game. In previous columns we have detailed “bucket strategies” to allow for safe to low volatility reserve funds to provide “pay checks” while markets are down, as well as “cash flow generators” to feed the kitty over time.

With an appropriate asset allocation strategy you can have peace of mind, stop worrying about market machinations, and get out there, enjoying the warmth and light. Happy Daylight Savings Time!

Lewis Walker is President of Walker Capital Management, LLC. Securities and advisory services offered through The Strategic Financial Alliance, Inc. (SFA). Lewis Walker is a registered representative and investment adviser representative of SFA which is otherwise unaffiliated with Walker Capital Management, LLC.

4Sk6|d