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  • Writer's pictureJoe DeLisi

I’m Always Worrying for you

Updated: Jun 27

In March of 2020 I began to write what I was feeling at the time. That feeling was a type of worry. I wasn’t worried that markets would crash and never recover, I was worried my clients were concerned about something they couldn’t control and mostly couldn’t really understand. The article I published last year can be found HERE. It was picked up by not just my clients but also some of my colleagues who had me do several video presentations on it, one of which can be found HERE.

Looking back I heard from many of my clients that the words I wrote and spoke about what I was doing to make sure they were ok really did help them to let go of that worry as they focused on other things at the time. By not being concerned about their portfolio, they had the band width to prioritize their job and their health and the health of those around them.

But what now? What does your financial advisor do during a “normal” market? This short piece is meant to be a follow up to the “Allow Me To Worry For You” article from last year. Titled “I Am Always Worrying For You”, this article isn’t meant to explain that I worry about markets all the time…I don’t. But it assumes that many people do worry about their money. That makes sense to me. You trade your time on the planet for money. For most, money represents their life because it literally is life that is exchanged for dollars. And that is probably the biggest realization any financial professional needs to understand. It’s not just private property that is represented by dollars, but minutes and hours and years of a person’s life on this earth.

But it doesn’t really help anyone to worry about capital markets unless they are trained and watching those capital markets all day. Most of you either aren’t trained to do that or don’t want to do that so you hire someone like me to do so. What, then am I doing all day, every day, to “worry” for you in this, normal market environment?

I will boil that down to two main topics. First, I am looking at all the markets that make up your portfolio every day and second, I am looking to the movement of the portfolios over different time frames to be sure that there isn’t anything that is outside of normal expectations. Let’s look at those two things in a little detail:

What are “all markets”?

The biggest challenge for most new clients is to communicate to them that following the market on mainstream media isn’t actually that helpful in leading them to understand how their portfolio is doing. The media uses mostly the S&P500 or the DOW to quote what the market is doing. It shows up like this, “the market jumped 200 points today…” or like this: “the market hit a new all time high of 4,500 today…”. Both of those examples are referring to what is essentially large company stocks in the U.S. That isn’t enough information to tell anyone how their own personal portfolio that I help manage for them is doing. In the domestic portion of clients’ portfolios alone, we track large, small, large value, small value and micro stocks. That’s five different markets that mostly don’t all move in the same direction on the same day. In fact, we don’t want them to! We want them to have low correlation to each other which gives you a smoother ride over long periods of time. The same is true in the international markets. We have all the same categories of the domestic equities, but we also have emerging markets. On any given day I may be looking at somewhere between 10 and 20 different markets around the world to get a sense of what “the market” is doing.

Why am I doing this? Is it to predict market movements ahead of time? No. I can’t predict the future. But I can look at market movements and then look at how your portfolio responded, and I can compare that to the math of how we built your portfolio. If it is moving within a normal range of ups and downs, we are ok. If it is outside those norms, then we need to look a little closer. These “normal ranges” are what we refer to as “standard deviation”.

How Do I Use Standard Deviation?

If an engineer is building a bridge, he or she will use math to be able to build it in a way that allows for the bridge to sway. If the bridge does not sway enough in a windstorm or an earthquake, that bridge will collapse. However, the opposite is also true. If the bridge sways too much, it will also collapse. Generally, the math an engineer uses to figure out the ranges of success is known as standard deviation. The engineer needs to be able to measure what is a normal (standard) movement (deviation) from the expectation of the structure. If it stays within the standard deviation, the structure is sound and working. Again, normally, mathematicians will measure out three deviations from an expectation to give them a 99.7% certainty of what to expect.

Portfolios can be engineered the same way. If a client has an expectation of a certain rate of return, we can use math to build the correct amount and type of equities in the portfolio to help achieve that return. But we know we won’t get that exact return every single year in a linear fashion. The returns will move or sway or deviate from the expectation every year. For my part I look to make sure that the movement is within our expectations to be sure the portfolio is still working and won’t move too much or not enough.

A great example of this happened from January 2020 to April of 2020 and again from January 2021 to April of 2021. The first time period was the beginning of COVID, and an aggressive portfolio was showing a negative return during those monthsthat, had it continued, would have delivered a -80% or so return to the portfolio for the year. That return was way outside the standard deviation of the portfolio. So, while I couldn’t predict how or when, I could tell the investor that the portfolio was not anyway near likely to be down 80% for the year 2020. Could it have been down 40%? Yes. Could it wind up being positive? Yes (and it did…who could have predicted THAT!).

Then again early this year, in the first quarter of 2021, the U.S. portion of an aggressive portfolio on its own was on pace to deliver over 100% for the year. This, too, was outside the standard deviation. My message to clients was simple…at some point along the year in 2021 the portfolio would slow down or even have some negative time periods. That was a good thing. It needed to get back to its normal deviation or something would be mathematically broken.

Bottom Line

The bottom line for my clients is this: I am literally always “worrying” about your money for you. In good markets and bad markets. I am actually watching these markets every single day. Not because I think I can predict anything, as I know for a fact I cannot. I am watching for things that would alert me to something that might either be broken or that would alarm you, the client, beyond normal fears and worries. If I can see those happening, then I know it’s time to talk to you and again explain what we are doing and why. Then we apply that same methodology to the rest of your balance sheet.

Questions or Fears?

If you read this but it doesn’t help alleviate fears or concerns, NO PROBLEM! I don’t expect you to understand or even retain any of this information. I just want you to know that I know it and follow it and constantly stay on top of it. If you are concerned with any part of your financial situation, you should contact me, including my business cell phone number which is 901-468-6655.

The information contained in this material was based on information that was current prior to the expiration date. This historical material should be used as a reference only and may not be indicative of current circumstances or facts.

The opinions expressed are that of the author and not necessarily that of Guardian/Park Ave Securities.

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 4275 Executive Square #800 La Jolla, CA 92037 619.684.6400. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. WestPac Wealth Partners, LLC is not an affiliate or subsidiary of PAS or Guardian. Insurance products offered through WestPac Wealth Partners and Insurance Services, LLC, a DBA of WestPac Wealth Partners, LLC.

CA license number 0D34103 | AR license number 307935 | 2021-126423 Exp. 09/23

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