or hundreds of years, sailors used the North Star as a guide when land was no longer in sight. The North Star, also known as Polaris, is located at the north celestial pole, the point around which the entire northern sky turns. While most think it is the brightest star in the sky, it is actually the 50th brightest. But its location is easy to spot, which helped sailors navigate even during the roughest of seas.
While most look back at the period from 2010 to 2019 as a straight-up bull market in stocks, there was plenty of risk along the way. U.S. stocks fell 7% to 20% during the following events each year in the last decade.
| Year | Event |
|---|---|
| 2010 | Flash Crash |
| 2011 | U.S. Debt Downgrade |
| 2012 | European Crisis |
| 2013 | Interest Rate Temper Tantrum |
| 2014 | Ebola Virus |
| 2015 | Oil Crash |
| 2016 | Brexit |
| 2017 | NASDAQ Drops |
| 2018 | U.S. Government Shutdown |
| 2019 | U.S. / China Trade War |
This year stocks fell 35% in a month due to the global pandemic. There is always a reason to sell if you pay attention to the news. Investors need something more as a guide.
A financial plan is the process by which investors find their own North Star. Studying how spending, taxes, and various allocations work to achieve those goals is a necessary step.
This process brings the proper mix between stocks and bonds. It may be that an allocation to stocks of 35%, 50%, or 65% is necessary to achieve the long-term planning goals. This weighting is the Investor’s North Star.
Studies show that asset allocation, or the mix between stocks, bonds, and real estate, drives over 90% of the returns for investors. The other factors like timing and security selection are less impactful. This is why the Investor’s North Star is such a powerful guide.
If an investor has a 50% target to stocks and markets fall, the weighting to stocks will be below target. Buying stocks while they are down and rebalancing back to the target will get them in line with their own North Star. However, implementing this in times of duress can be a challenge.
If stocks rise above the 50% target, selling to regain the target weight is necessary. Still, the greed factor and the desire to hold on to winners can creep in as a reason to avoid staying in line with their North Star.
Today investors face plenty of reasons to worry. The coronavirus is still a major health risk and in turn one for the economy. Uncertainty around the U.S. presidential election and potential policy changes is another risk.
Still, investors can look to their financial plan and the North Star it produces. This will allow a response to both the rough seas or calm waters the market brings.
Important Disclosure Information
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Marcum Wealth, or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Marcum Wealth. Please remember to contact Marcum Wealth, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Marcum Wealth is neither a law Firm, nor a certified public accounting Firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of the Marcum Wealth’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request. Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.