Weathering the storm: Local wealth managers weigh in

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In March, as states hunkered down under shelter-in-place orders and medical communities scrambled to prepare for COVID-19, Tom Kessinger, director and branch manager of Kessinger-Lee Financial Group at Baird, wrote two words in capital letters on a sticky note and attached it to his computer monitor: “STAY CALM.” 

It’s a small reminder for him, and a message that he and other wealth managers across the Bluegrass have worked to communicate to their clients as the stock market courses through one of its most tumultuous periods on record. 

“We are focusing on knowing what we own, staying calm, and then making our moves slowly,” Kessinger said. 

While the market has faced rapid declines in the past, the nature of the pandemic and the scope of the nationwide shutdowns have added a new element of apprehension to the current crisis. Kessinger likened it to a mixture of the stunning human tragedy experienced during 9/11, the “economic tsunami” of the 2008-2009 financial crisis, and the high unemployment endured by the nation during the 1970s. And the country is bringing lessons from all those crises to bear as it faces its current challenge. 

“If experience is a wise teacher, we’ve had a lot of experience over the last 30 years,” Kessinger said. 

Financial advisors across the Bluegrass have spent much of their time during the past month checking in on their clients, both personally and financially. Most have remained steady in their investments, they said, but the market downturn has been particularly disconcerting for shuttered business owners and for those who are retired or approaching retirement age. 

“Generally, our clients are feeling higher levels of stress but are not panicking, and they are not letting fear drive their investment decisions,” said Matt Galbraith, vice president of business development for Community Trust Wealth & Trust Management. “The groups that have been the most concerned are clients that have shorter time horizons and clients who are on a fixed income and rely on their portfolio to generate an additional income stream.”

Maintaining perspective 

As media headlines focus on the shock of record single-day point drops, wealth managers have encouraged investors to focus on their own plans and remember that most portfolios are built to temper some market adversity. 

“Advanced planning and modeling have really helped clients maintain a positive attitude and show resolve in sticking with their plans, allowing them to focus on doing their part to help us all get to the other side of this crisis,” said Kevin Avent, managing director, wealth management, for Unified Trust. “We coach clients to tune out the drama, especially the financial media, during times like this, and stay focused on the recovery.” 

Bear markets come in all different shapes and sizes, Avent said, but they share two fundamental characteristics: they bring drama with them, and eventually they give way to new bull markets. 

“This is precisely the time clients must focus on their own individual time horizons, which for most folks is at least five years or longer from now, allowing plenty of time for stocks to recover and make new highs again,” Avent added. 

When the daily news cycle is spurring market fluctuations, it is crucial for clients to keep their eyes on the long game, according to John Boardman, founder and CEO of Ballast, Inc. 

“My favorite quote from Warren Buffet is: ‘In the short-run, the stock market is a voting machine. Yet, in the long-run, it is a weighing machine,’” Boardman said. “If you try to trade in and out of markets when news is driving market behavior, you are a playing a dangerous game. We believe refocusing our clients’ attention to their plan helps properly recalibrate their long-term perspective.” 

Although the volatility can be unnerving, Barry Norfleet, senior vice president and senior trust officer for WesBanco Trust & Investment Services, said patience is often the best course of action. 

“With wide equity market swings, many investors are thinking, ‘Don’t stand there, do something,’ when the best course of action is to not do anything but just stand there,” Norfleet said. “Our best practice involves examining these types of portfolio corrections, and the last thing investors should do is change plans during a steep correction.” 

When to sell – and when not to 

While most advisors adhere generally to buy-and-hold strategies, not all have counseled clients to ride through this downturn. For Jeremy Wallace, founder and chief investment officer at Wallace Hart Capital Management, the recommended course of action was a swift departure from the market at the end of February. 

“We have a disaster plan in place for all of our clients,” Wallace said. “That executed for us on February 28, and we actually sold all of our clients out of the market.” 

Wallace said the company’s disaster plan, which they incorporated into financial plans starting in 2012, is designed to shield investments particularly for older clients who don’t have a longer timeline in which to recover, and also to protect the mental health of those investors who just can’t bear precipitous drops in their portfolios. 

“We’re not trying to predict the market. We are not trying to time the market,” Wallace said. “The psychological impact of seeing money evaporate in the course of a month—or three months or six months—is really difficult, and most people can’t stomach it. They think they can, but when it happens, they can’t.” 

For those who have already experienced losses, Suzanne Powell, vice president and wealth management advisor at Meridian Wealth Management, advises them to stay the course. Selling to cash will not bring that lost money back, she points out, unless they can buy back cheaper than they sold. 

“Considering that the market is experiencing huge swings every day, it will be very hard to time a buy back in, which means you may likely buy back at a higher price,” she said. 

Continuing contributions to 401ks and IRAs will allow investors to buy into the market at cheaper prices, Powell said. And for those who can, bumping up those contributions now will benefit them even more in the long run, she said. “If their employment is stable, I have asked people to actually increase their contributions temporarily while they are home and not spending discretionary dollars on entertainment,” she said. 

Galbraith has counseled clients to be both rational and opportunistic in any portfolio changes they might consider. 

“Since the bear market began in February, we have taken investment actions on multiple occasions, including adding to our existing investments in certain high-quality, well-managed companies, as well as taking new positions in companies that we have always liked but previously considered too expensive,” Galbraith said. “We have also exited some positions where our confidence had waned and the stock no longer held the same level of appeal.”

Reliable performers are resilient 

Solid companies with strong balance sheets that perform well in long-term portfolios are also the most likely to bounce back after a crisis, advisors pointed out. 

“We have confidence in the types of companies that we own, and while this virus is impacting all businesses, we know that, long term, the companies that we buy should be industry leaders for the future,” said Quin Broadbent, vice president and director of portfolio management at Kentucky Bank. 

“This virus has started to create a new normal, and we are fortunate to have companies in the clients’ portfolios that should succeed in this new environment as well.” 

John McIntosh, director of the McIntosh Terhune Group at Baird, emphasized that even as investors wait to see how the market adapts, the companies they are invested in are actively seeking creative solutions to grow and protect their businesses. Many industries, especially pharmaceuticals and manufacturing, will likely emerge with breakthrough innovations and new opportunities. 

“Even if you don’t make any changes to your portfolio, the companies that you own are busy trying to figure out how to make sure their business survives and thrives in the near future,” McIntosh said. 

Through its many historic declines, the market has always managed to find its way back. McIntosh pointed out that since 1950, the market has dropped by more than 19 percent over a dozen times, and in every case, it climbed back to make a new high – sometimes within two months and sometimes after three years. 

“Nobody likes it, and we don’t like it, but generally people are handling it in a good way,” McIntosh said of the downturn. “If you are going to own stocks, you have to be optimistic in the first place. … And generally, the people I serve have been through difficult periods before and come out the other side. I even have older clients who call me to say, ‘It’s going to be okay.’” 

Wealth managers have been spending a lot of time reaching out to check on their clients’ physical and mental well-being, they said, in addition to answering questions about their portfolios. 

“It has made us realize how appreciative we are to be working with our clients as they are concerned about our well-being as well,” Broadbent said. “The uncertainty is there, but there is also certainty in the sense that we are surrounded by loved ones, we are spending time doing things that we otherwise wouldn’t, and we should all realize that everyone is going through this same thing.” 

Putting stimulus to work 

While the stimulus plan is still unfolding, wealth managers were encouraged by the government’s early moves to shore up the economy and offer some relief to small businesses and employees whose financial security has been threatened by the shutdown. Payroll protection program and SBA disaster loans will offer important economic lifelines for companies looking to survive this pandemic, they said. 

“There should zero stigma around applying for unemployment or business owners applying for government help,” Boardman said. “It was designed to help boost the economy; you should use all resources available to you.” 

The suspension of required minimum distributions, or RMDs, from IRAs will help those looking to rebuild their retirement assets, managers said, while the ability to withdraw money from IRAs and 401ks without penalties, while not recommended, also offers options for those who may need it. 

While wealth managers agree the government stimulus is necessary and essential right now, it is also wise to consider what it might mean for future tax rates. For those experiencing a lower income and assets that have fallen in value in 2020, converting to Roth accounts could be beneficial in the long run. 

“Even prior to this, if you take a snapshot of the federal government’s deficits, it all but makes certain that future tax rates will go higher,” said Andrew Hart, founder and chief planning strategist for Wallace Hart Capital Management. “That’s not good or bad, I think that’s just a fact of life.” 

What can be learned 

Although the COVID-19 crisis was unexpected, bear markets are an eventuality that wealth managers account for in financial plans, and now is a good time for investors to evaluate how well those plans work for them. 

McIntosh encourages investors to take notes on any financial vulnerabilities that are currently causing them discomfort, so they can make adjustments to address those concerns the next time the market hits a new high. 

“Communication is important, and everybody should have somebody they can communicate with about their money,” McIntosh said. “Most financial advisors are more accessible than most potential clients think they are. I wouldn’t want anyone to feel intimidated that they couldn’t access one of us. … We want to be as helpful as we can be.” 

A little self-reflection is a good idea in times like these, advisors said, but try not to obsess about what the market will do next. 

“It’s springtime in the Bluegrass state. Get outside (but maintain your social distance), go for a walk or run and enjoy the improving weather,” Norfleet said. “Review your risk tolerance, if the most recent decline keeps you up at night, and take a disciplined approach to modify strategic allocations. Then trust your process when markets make you doubt it.” 

It is also a good time to prioritize the things in life that are really worth the money, Powell added. 

“I think this situation should really be used as an opportunity for every person to take ten minutes, determine what their hobbies and happiness really cost and eliminate the extras,” Powell said. “We should all do a better job of saving—for emergencies and for retirement.” 

When considering the big picture, Bluegrass residents should also be thankful that the region is anchored by three solid employment engines: the University of Kentucky; a robust healthcare community, including multiple hospital systems and ancillary services; and Toyota Motor Manufacturing Kentucky, Kessinger noted. “So we are going to come out the other side in really good shape as it relates to employment and as it relates to the flow of money,” he said. 

And although it is still unclear how the market will come out of this crisis and when things will turn around, bear markets don’t last forever. 

“We do believe one thing does remain true; we will get through this,” said Andy Reynolds, partner and COO at Ballast, Inc. “It likely won’t be as pretty as some predict, but it also will likely not be as ugly as others predict. But at some point, it will be in the rearview mirror.”

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