Investors ‘Buy and Hold, No Matter What’

John Grace’s money management firm, Investor’s Advantage, strives to create plans with three attributes: Strong, safe and simple. That is, they must be strong enough to weather market uncertainty, safe enough to protect investors from undue risk and simple enough “so that clients know what they own and why,” Grace said in a previous interview with the Business Journal. Investor’s Advantage is affiliated with Securities America Inc.

and Grace is a registered principal of that Nebraska-based advisory and brokerage subsidiary of Advisor Group Inc.

in Phoenix. Grace is a former trustee of the California Lutheran Educational Foundation in Thousand Oaks; a past executive board member of the Westlake Village Chamber of Commerce; and past president of the Rotary Club of Westlake Village Sunrise.Question: What do clients want now that they didn’t want a few years ago? And do you know why?Answer: The primary message the securities industry has taught investors is to buy and hold, no matter what. Such a strategy can work when you don’t need the money or you don’t have to take Required Minimum Distributions from traditional retirement accounts. Once you pass age 72 under current tax laws, you must start taking withdrawals and those withdrawal ratios increase for the rest of your life. When you expect or are required to take money out of your account, you are now in unprecedented territory. For life. In the past 40 years, we have discovered savvy investors hate losses more than they love gains. So, the money management work flips from growth and income to income and growth. Once your account experiences drawdown of 50 percent, for example, which may indeed be your exact experience in 2008 after market losses and a modest withdrawal, you need no less than 100 percent gain to get back to even. Now you need a “hail Mary” pass to get back in the game. On the other hand, if losses and withdrawals had been limited to 20 percent, for example, your account needs to see a 25 percent gain to get back to your high-water mark.  Suddenly, limiting losses becomes crucial, as opposed to staying on that wild roller coaster ride.What do clients most frequently need to be counseled about?Technology has greatly changed every industry. But the securities industry seems to be operating in the Dark Ages. From Feb. 19 to March 23, 2020 the market was off 35 percent from peak to trough. First quarter 2020, the S&P 500 was off 20 percent, according to Yahoo Finance. If your account in the first quarter was down 2 percent, you can see how important it is to not get sucked into the market drama, but pay attention to how your account is doing. If your account is performing within your risk of loss parameters, you can let the markets go down like the Titanic as you see your assets remain intact. In our experience, the virtues of active management and greater diversification have been helpful in keeping client assets from being handed to them.

What do you think your industry will look like 10 years from now? While mobile apps are increasingly popular to buy and check on stocks on the go, it takes more than a few trades to plan your financial success. Here’s hoping Americans get as comfortable planning their financial success as we do planning for weddings and vacations. The question becomes what does it take for you to make work optional? The job requires some math and regular reviews to see what adjustments can be made so that you know that you have the income you need after your last paycheck to continue for the next 10 to 30 years you want to make work optional. My goal is over the next 10 years for Americans to begin setting money aside soon after birth. There is certainly an advantage when you have 60 to 80 years to set money aside, as opposed to 20 years, which is when many workers start thinking about retirement.

– Mark R. Madler