KISS - Keep It Simple, Stupid

KISS stands for “Keep it simple, stupid”. Have you heard this acronym? It is something you might share with a friend when he or she is overthinking a situation. Maybe a kinder way to communicate a similar point would be to say… “let’s take another look back to see the forest as opposed to just a few trees.” Either way, these sayings can encourage us to take a step back and look at the bigger picture.

All humans are linear thinkers. We are prone to extrapolate the most recent past into the future. For example, after hurricane Harvey, most Houstonians were convinced that it was going to rain forever. This phenomenon can also be true with investing. When markets move lower (and they inevitably will), some investors will begin to believe that stock prices will continue to never move higher.

As you can see below, history does not support this notion as markets have always rebounded from a market correction.

Past performance does not guarantee future results. *Assumes an initial investment of $10,000 in stocks beginning on January 1 of the date in column 1 through December 31, 2023, reinvestment of dividends and capital gains, and no taxes or transaction costs. Stocks are represented by the S&P 500 Index, which is a market capitalization-weighted price index composed of 500 widely held common stocks. Indices are unmanaged and not available for direct investment. For illustrative purposes only. Data Sources: Morningstar and Hartford Funds, 1/24.

However, 2024 is not a year without concern. This will arguably be the largest global election year in history coupled with geopolitical tension in the Middle East, and problems regarding the U.S. border. Despite these concerns, we encourage our clients who are long-term investors (not short-term traders) to take a step back to more clearly see the bigger picture. What does it mean to “see the bigger picture?” Let’s use our most recent conversation with Sally to help answer that question.

Last month, we had a prospective client (we will call her Sally for sake of privacy) express a concern that she knows markets will rebound but she is planning to retire later this year and does not feel like she has time to wait for the market to recover.

Sally makes a great point. Market recoveries do take time. Here are two items that we encouraged Sally to consider about her specific situation:

1. The closer you get to retirement, the more you need to study your “risk budget” inside your investment portfolio. Sally had historically been a stock investor with the goal of growing her retirement portfolio. On the brink of retirement, she realized her risk appetite was lower than it had been over the previous few decades. For Sally and others, we recommend reducing your risk budget 1 – 3 years before retirement (if applicable). In a perfect world, you are properly allocated (stocks vs bonds vs cash vs private investments) for retirement before your last day in the office.

2. A majority of Sally’s investment portfolio was invested in growth stocks during her working career. She was concerned she was going to have to sell part of her portfolio at the “wrong” time in retirement. We discussed how retirement is an income driven exercise. For Sally (and others), we recommend investing the stock portion of the portfolio in dividend paying stocks. We illustrated that even with stock prices moving lower…the dividend income of the portfolio did not change and that this stream of dividends was funding Sally’s retirement expenses. Dividend stocks can reduce a great deal of the stress associated with retirement cash-flow planning. Higher income and lower risk are both welcome during retirement.

We could make the argument that 2024 is a type of macro environment where it is even MORE important to know what you own in your investment portfolio and additionally why you own it. Our investment process is centered around owning well-established companies that pay dividends and have consistently increased those dividends each year.

Interested in diving into the details or reviewing the “bigger picture” of your retirement? The Price Group is here to help.

 

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About the Author

Matt Price serves as a Partner and Managing Director for The Price Group of Steward Partners. He resides in Houston with his wife, Emily, their four children and "Fisher" the family golden retriever. Matt studied at the University of Pennsylvania – Wharton School of Business for his Certified Investment Management Analyst (CIMA®) designation after receiving his undergraduate degree from the University of Tennessee - Knoxville. Over the past 12 years, Matt has helped families make high quality, common sense decisions regarding their wealth and their legacy. Matt firmly believes everyone needs a wealth coach!

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This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. The strategies and/or investments discussed in this material may not be appropriate for all investors. Steward Partners recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Wealth Manager. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

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