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Where wealthy investors can find relief in a mediocre economy

Written by Richard Battin on September 19, 2023


Where wealthy investors can find relief in a mediocre economy

According to the US Bureau of Labor Statistics, annual inflation fell to 3% in June. A month later, the unemployment rate was 3.5%, only slightly above its lowest level since 1969.

After more than a year of dire forecasts for the U.S. economy, some experts have scaled back their recession forecasts, certified financial planner Kate Dore reported for financial and business network CNBC. “Strong labor numbers, falling inflation and other economic data could suggest the economy is headed for a soft landing,” it reported.

The U.S. Census Bureau reported this week that the share of metro Miami residents earning over $100,000 increased from 28% to 35% between 2019 and 2022.

So what do local financial planners say to their high-net-worth clients in a conflicted “maybe yes, maybe no” economy?

Brett Horowitz, financial advisor at Evensky and Katz/Foldes Wealth Management, with offices in Coral Gables; Lubbock, TX; and Seattle told Miami Today: “We advise our clients to take advantage of 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, simply looking to capitalize on a market top. While some clients may view this as market timing, we disagree,” said Mr. Horowitz.

“We don’t try to predict the future and sell before a decline,” he said. “We react to the past and sell after a nice rally, which is what our rebalancing software tells us to do so that we remain emotionless.”

For clients who may need cash in the next 12 months, Mr. Horowitz said, “We recommend they sell stock funds and use that money to invest in a money market fund that returns more than 5%.”

“That way, if there is a market downturn in the next 12 months, they don’t have to sell anything at an inopportune time.”

For hesitant clients who have cash on the side and are waiting for the expected recession that didn’t happen, “we try to gently implore them to see the error in their strategy.”

“We know that no one likes to invest money right before the market falls, but that is the challenge because it is impossible to predict and that is the very definition of market timing,” Horowitz said.

“That’s why 95% of equity funds underperform the S&P 500,” he said.

“If it was easy to see that the market was going to fall in the future, it would be much easier to beat the stock market because the S&P 500 isn’t about buying and selling. Instead, it simply follows the economy and remains fully invested at all times.

“We encourage our clients to view the investment as a 5- to 10-year commitment. In any given year, your money could fall 50%, rise 50%, or anything in between.

“However, the math is on their side as the market is typically up three out of four years, so spending a year investing is generally dangerous for their wealth.”

“But if they invested over a 10-year period, they would have a 99 percent chance of making money over that longer period,” said the asset manager.

“Another approach we can suggest is for them to come up with a dollar-cost averaging plan for their funds. For example, I will invest 10% of my money every month for the next year.

“This way, the client sees the ups and downs, minimizes regrets, and has a solid strategy that doesn’t rely on ‘fingers on the wind.’

Mr. Horowitz warned: “It is important to understand that we will not know we are in a recession until six months have passed and a recession has been declared. At that point, markets will likely have bottomed out.”

The asset manager, with more than two decades of experience in the business, said: “If someone waited for a recession to hit and then invested their money, they would be late to the party and would have already missed the upside.”

“Why? Because the markets are looking ahead, and with all the bad news happening now, investors are very excited that there will be better news in the future.

“As a long-term investor, I honestly don’t care what the markets do this year or next, because when I need my money 30-plus years from now, all I care about is that my money will be significantly higher than it is Today.

“I can also guarantee that I don’t remember what the market price was 30 years ago.”

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