Brenda Vingiello, Sand Hill’s Chief Investment Officer, joined Squawk Box to discuss her thoughts on the latest market trends and market outlook for 2025. This
Whether Pirates, Adventurers or Investors: Don’t Cover Your Eyes
Published Date : May 16, 2014
A couple years ago my husband and I took our three children to Disney World. My son, who was six years old at the time, wanted so desperately to be brave like his older cousins. He reluctantly walked with me, locking elbows, through the line for the Pirates of the Caribbean ride. As we approached the tippy Pirate ship holding mostly eager able-bodied Pirate enthusiasts, he said “Mommy, you’re going to have to cover my ears.” I suggested very gently that he could cover his own ears if he needed to, to which he replied …”but I can’t…who’s going to cover my ears if I’m covering my eyes?”
There clearly aren’t enough hands when we’re scared: either hands to hold, hands to wring, or hands to cover a frightened eye. In the case of my son, clearly young enough to not yet grasp the difference between real and pretend, this is understandable. For the rest of us “seasoned pirates,” there continues to be a blind eye turned towards some of the realities of our own investing life.
Do you know how your overall portfolio is allocated? Do you think about the considerable risk of any illiquid positions: restricted stock, incentive stock options, or private equity allocations? How do you think your wealth will behave today in a significant equity market sell-off like the 2008-2009 market environment? Does your liquid asset base balance out concentrations of illiquidity? Have you considered every individual, trust or IRA account when thinking about your overall asset allocation? Does that allocation reflect your goals through your asset accumulation phase and how will your needs change through this phase as you near your own retirement and beyond?
According to Federal Reserve Economic Data (FRED), stock market prices, as measured by the S&P 500 Index, fell 57% from their October 2007 peak to a trough in March 2009. The net worth of households and non-profit organizations fell from a peak of approximately $67 trillion in 2007 to a trough of $52 trillion in 2009, a decline of $15 trillion or 22%. Markets began a steady climb thereafter and returned to record levels by April 2013. A 22% decline in household and non-profit organization wealth today retraces that recovery back to a point still below the peak in 2007. Any sell-off in the market hurts, but if you have an overall investment portfolio that is more aggressive than you think it is, you may be in for a big and painful surprise. And if you are nearing your retirement and a market selloff hits, you’re especially likely to feel that pain.
Evidenced by the return of the S&P 500 Index of over 33% in 2013, the equity market soared, so it’s uncomfortable to talk about market sell-offs. Following a year of complacency, markets have begun to reflect fundamental factors and have essentially consolidated for the last several months, leaving returns year-to-date essentially unchanged. Investor bearishness has returned to more normalized levels, which we view as a healthy sign. When the markets are only up and to the right, one would expect periods of consolidation. It’s normal. It’s in the abnormal selloffs, like the prolonged and devastating 2007-2008 credit crisis, that you become acutely aware of the risks in your portfolio.
Strategic financial planning and risk management are exercises we should all do with our eyes and ears open. It is critical to have a proper financial plan in place and an active strategy around concentrated risks or investment milestones. We all say, especially those of us with children, “time really does go by so fast.” Open your eyes and your ears, know what you have in your investments – liquid and illiquid – and what you can expect to experience in any market. Engage in the process and you’ll have a much more enjoyable ride. Land-ho!
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All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
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