Richard Oring's phone has been ringing off the hook with calls from clients panicked over the coronavirus and what effects it will have on their investment accounts. Today we cover some important things to remember.
When you set up your portfolio, you start with goals and what you need to achieve to get there. Once you have the plan in place, stick to the plan instead of letting your emotions get the best of you.
One of the most challenging parts of Richard's job is managing client expectations. He walks us through his process and the safeguards he uses with client accounts.
And finally, the three questions you should ask yourself:
Richard Oring's phone has been ringing off the hook with calls from clients panicked over the coronavirus and what effects it will have on their investment accounts. Today we cover some important things to remember.
When you set up your portfolio, you start with goals and what you need to achieve to get there. Once you have the plan in place, stick to the plan instead of letting your emotions get the best of you.
One of the most challenging parts of Richard's job is managing client expectations. He walks us through his process and the safeguards he uses with client accounts.
And finally, the three questions you should ask yourself:
Jag:
Welcome back to Financial Matters with Richard Oring. I am John Jag Gay. Richard, it's been a crazy couple of weeks here. What is going on?
Richard:
Oh my God. All this hysteria going on with the coronavirus. It seems like the world's coming to an end. We should bunker down. It's a zombie apocalypse. But the reality is we know that's not ... the world's not coming to an end. We know that our investment accounts aren't coming to an end either.
Jag:
Right.
Richard:
We've seen these markets drop. We've seen them drop dramatically in the past. One thing in common they all have, they all recover.
Jag:
Right.
Richard:
And when they recover, they hit new highs eventually. As you can imagine, Jag, I'm getting so many phone calls. I've been receiving phone calls from my clients all morning, all afternoon, and at night. I have phone calls scheduled this weekend with clients, but for the ones I've had already, there's one thing in common. After the conversation, we go over the portfolio in detail and it seems to have calm their nerves down.
Jag:
I think that's important because when you originally set up the portfolio, you want to set it up to plan for your level of risk tolerance. You want to set it up for diversification and we've talked about this in previous episodes to, Richard. It's one thing to talk about your risk tolerance when you're sitting in a room looking at numbers on a piece of paper or on that fancy screen that I'm looking at behind you right now. But when it comes to the real world and real world situations and real market volatility, the likes of which we haven't seen really any significant volatility in the last 10 years. And the extremes this might go to, it might be even longer than that. You really have to trust the process in what you set up when you first sit down with Richard, when you get into a real world situation like this.
Richard:
Jag, you mentioned that we haven't seen a big drop for a while for 10 plus years, but it wasn't that long ago. Fourth quarter, 2018 market was almost down 14% and I didn't get the same phone calls. So we have seen it but I think a lot of it has to do with the news, the coronavirus, stadiums closing, closing schools, President's going to be speaking soon regarding declaring a national emergency. So this is different, but we have seen drops.
Jag:
Right. And I think a lot of that does have to do with the news. We're recording this on Friday afternoon, March 13th, Friday the 13th ironically. Wednesday night, my wife and I were sitting there, we're like, you know what? This has hit a tipping point when the NBA postponed games and then later we found out about the NCAA March Madness being canceled. All this stuff, I think when we hit these mass cancellations of significant cultural events, a lot of them sports among many other things and bannings of gatherings in New York and California. I think that's when some of the hysteria really kicked-in in earnest because that's when it's like, okay, the memes are funny, but now you know what's getting real right.
Richard:
Right. One of my friends called me the other day, he's like, "Rich, I hate to bug you. I know you're really busy, but I got to find a new income source." I'm like, "What are you talking about? You have a job." He goes, "No, I can't bet on basketball. I can't bet on hockey anymore. I got to make up this income somehow."
Jag:
It's funny because it also affects those stadium workers, concession workers. I got a buddy of mine from college who was a sports reporter in Raleigh, North Carolina. And I said, "So what are you going to do now? You're in Duke, North Carolina basketball country. What do you do now for the month of March?" He said, "I'm going to be a news photographer and help them cover the news, because there's a lot of news right now."
Richard:
He's lucky that he can find something else. I heard today that Mark Cuban was going to be on paying his staff while they're off, which is really nice. So hopefully, there's going to be a lot more employers out there helping out.
Jag:
Not all employers have Mark Cuban's Shark Tank money though. I feel bad. I mean I can work from home. I'm working from home right now. But what about the barista at Starbucks that relies on you to stop in and get your coffee every morning on the way to work? This is going to affect a lot of people.
Richard:
I was going to work at home today until I found out my kids were off from school today.
Jag:
Then you're not going to get anything done.
Richard:
I was going to get nothing done with three boys running around the house screaming and playing and what my time. So I figured suck it up and get in the car and go to the office. But Jag, you said something a couple of minutes ago and that was risk tolerance. What I've been doing is when I talk to the clients, I remind them. When we sat down, we went over goals and those goals consisted, what was this money for? What was the time period when we were going to need it? What's it going to be for a new car? Was it going to be for retirement, a wedding, something? Every goal should have a time allocated to it. Once we know that, then we have to find the risk. We got to measure the risk and we use different measures to figure it out.
Richard:
We asked the same question in different ways. I'll give an example. A lot of times we'll say, if you have a $100,000 are you comfortable with a 10% drop in the market? A lot of people think 10% not a big deal, but when you tell them it's $10,000 and they only have 90,000 it hits differently. It means something differently. So we ask questions, very similar questions, but a little bit different just to find out their comfort. Once we see this, we give ratios. Like if you're willing to take this much risk, this is how much you're willing to lose. It's like a ratio between the two and we try to figure that out.
Richard:
So once we do that though, here's the hardest part about my job, and that's managing client's expectations. Picking investments, building portfolios, easiest thing I can do. Managing the client's expectations is the hardest. They might have a risk tolerance, very conservative. They don't have enough savings and the goal is not going to be met unless we take more risk. It's my job to sit down with them, explain this to them, and tell them like, "Look, we have two choices. Increase your shavings or you're going to have to take more risk and this is the consequences when the market goes down."
Jag:
Sure.
Richard:
And we document this and we agree on it and we go forward. What's interesting is the way I manage portfolios, personally, I manage portfolios by trying to pick managers. It could be in separately managed accounts. It could be mutual funds or exchange traded funds. But the one thing I'm looking for is how they do on down markets. It's called managing based on maximum draw downs. So luckily, it's worked out for me, my clients and their portfolios. I'm not losing as much as the market. I can't guarantee future returns, but I can tell you it's working currently, which is really nice.
Richard:
So when clients are coming to me and they're saying to me, "Hey Rich, the market's down so much." And I go, "All right. Let's set up a web conference. Let's sit down, let's go over your accounts." I show them each of their holdings. I show them how the managers are doing and how they're doing against their benchmarks. And I remind them when we set up this account, I showed them the upside, but I spent a lot of time showing them the downside.
Richard:
It's amazing. You can go over that when everything's fine, but when the market's dropping like it is today or not today, today's actually paused, but what it has done over the last couple of days. I said, "This is what I showed you what could happen in this portfolio. These are the hysterical maximum draw downs in this portfolio. We shouldn't do anything. It's working. Everything we planned for is working. Why change something what's working?"
Richard:
I didn't open the account saying it's never going to go down. I can't guarantee returns, but I can guarantee that eventually you're going to get one statement and it's going to be lower than the previous. And then we dig in. I say, "Okay, when do we need this money?" We set up goals. We have time periods. If someone's young and they have time, it's retirement money, I show them. I go, "Look, time is going to recover. Historically, we put time on investments, they recover. In the meantime, continue contributing your tier 401k, your IRAs, you're buying more shares at a discount."
Richard:
In a previous podcast, we talked about going to buy a winter coat and you're like, "Crap, it's on sale. I'll come back next week when it's not."
Jag:
I remember this conversation.
Richard:
It's the same thing. You're buying the same quality companies you did a month ago. For clients who are close to retirement or are retired, they're a little bit more nervous.
Jag:
Sure.
Richard:
It makes sense why they would be, and I go through the equities. Yeah, they're down. They are done, but they're doing good compared to their benchmarks. Then I show them, I go, "Look, you have bonds, you have some fixed income in there where you have municipal bonds, corporate bonds, government bonds." There's different kinds of fixed income which might be in that portfolio based upon the current market for bonds. And then I show them that the bonds could be layered on short duration or intermediate or long term. When rates drop, bond prices historically go up. And just the opposite happens when interest rates go up, bond prices go down.
Richard:
So it's important to understand that bonds can fluctuate based upon rising interest rates. Right now we're historically low, so the way we combat that is we have lower maturities. So when bonds are going to mature in the next couple of years, they're not affected by interest rate hikes as much as intermediate long term bonds.
Jag:
Okay, got it.
Richard:
So Jag, I know it hurts. I know it hurts when you see your account value goes down and usually the worst thing you can do is react based on short term market drops.
Jag:
Yes. Something that I know we've touched on before, which that's worth bringing up again, is back in '08, '09 when we saw that downturn a decade ago, the people who panicked and got out locked in that loss when they got out and the people who stayed the course and stuck to their plan, eventually it came back and they were much better off in the longterm, right?
Richard:
Yeah. 2008, 2009 we learned a lot.
Jag:
Yeah.
Richard:
2007 we had a peak at the bottom of market. It was like down 50%. So a lot of investment advisors were getting all these phone calls, phone calls, phone calls. "Hey, keep going down. It keeps going down. You told me it's going to come back." The government kept on throwing stimulus packages out. Eventually something stuck, but it was so hard to keep telling clients to stick to their guns and not make changes. A lot of financial advisors and investment individuals, emotions took in and they reacted and they got out of the market.
Jag:
Yeah.
Richard:
And then what happened in '09? Eventually, it started going back up and there were still in the fixed income, the money markets cash and they missed that big incline in the market. What happened in '09, the end of '09. I learned from that. I'm not going to make that same mistake. That's why I set up the portfolios in the beginning based on the goals, the risks, expectations. Using managers would do well in down markets. So when it happens and it works, the portfolios are working, why change anything? I don't want to make that same mistake. You have to make two right decisions when you try to time the market, when to get out and when you get back in, it's too hard.
Jag:
You got to get lightning to strike twice.
Richard:
Yeah.
Jag:
It's really hard to do, but you look at what happened 10 years ago and you have the evidence to show, listen, we have a plan, we're going to stick to the plan. Look at what happened 10 years ago for those that got out versus those that stayed in. And this plays into the fact that part of your job, Richard, is to become a amateur psychologist sometimes. Emotions and money are so tied together and people are already on edge because they're worried about what's going on with coronavirus and they're worried about health and safety and infections and pandemics and diseases and we go down the list. Then they start seeing the money drop too and obviously, there's a correlation there, but they see their money go down. They're one more thing to be panicked about. They're on edge.
Jag:
On one hand, I'm surprised that you had time to talk to me today, but on the other hand, I'm glad that you see the importance of having this conversations so that we can get this information out to clients and to the general public because it is so important not to panic and to stick to the plan.
Richard:
Yep. Well, Jag, one good thing about this podcast is first off, I can't reach all my clients. But a lot of my clients subscribe to this show. So as important is to get out to the public, it's probably even more important for me personally that my own clients are hearing this and reminded what we did. Here's my advice for those who are listening.
Jag:
Yeah.
Richard:
They have to ask themselves a few questions. Am I comfortable with the amount of money I've lost over the last two, three weeks? That's the first question because that will measure the risk. Second question, have my goals changed since I started this account? Meaning, did you start this account with your investment advisor 10 years ago and now you're closer to retirement, but nothing has changed? Have you sat down with them explaining that maybe your risk has changed? Maybe you're only five years away from retirement or whatever. Maybe you inherited some money.
Jag:
Maybe you got married, maybe you got divorced. Maybe you had a complete change in your life situation.
Richard:
That's really important. Do you need to liquidate some of this money in the near future because there's maybe a tax obligation or an unexpected expense? Your investment advisor is never going to know this unless you communicate with them.
Jag:
Yes.
Richard:
And the worst thing you could do is sell something which has gone down so much. You can't recover those shares if you sell them.
Jag:
Yes.
Richard:
So you've got to start planning for times like today and you can't start planning what already happened.
Jag:
Right.
Richard:
I mentioned earlier, the hardest part about my job is managing expectations. Only way you could manage expectations is by communicating to your clients. For those accounts where I act as a fiduciary, what we call managed accounts. I call our clients, my office calls other clients every 90 days. I get a list. First of all, I review all the vestments daily.
Jag:
Yeah.
Richard:
I'm using the same investments across a lot of my clients. So those I actually look at first thing in the morning to see how they did from the previous day. But every 90 days I get a list and I look at my notes and I see what's going on with that client based on the last call. Sometimes our office is going to call them and say, "Look, Rich has reviewed your accounts. There's nothing he needs to do right now to go over anything. But if there's something you need to talk to Rich, let's schedule a meeting right now." We could do it on the phone, web, face to face, but let's schedule it.
Richard:
So there shouldn't be ever a time within 90 days where expectations aren't being updated if they need be. Like right now, tax returns are getting done. We're calling the clients, which I know are tax sensitive, where I have to be tax sensitive with divestment, I'm asking for copies of returns because I want to see how everything came out and I want to make sure I can plan for the next year. So communication is key in our industry. Without that, there's no way I know what the clients are expecting from me.
Jag:
Got it. If somebody wants to reach out to you, Richard, that is listening obviously, your clients have your contact info. But if somebody is listening and stumbled upon the show and is interested in talking to you about their financial future, especially in these stressful times, what are the best ways to reach out to you?
Richard:
Sure. If somebody wants to reach out to me, if they want a complimentary risk assessment on their current portfolio, I'll be more than happy to help. There's different ways to contact me. First, you can always call me directly. My phone number is (609) 924-2049. My direct extension is 126. The easiest way to do it though is so we don't play phone tag is go to www.ncfg.com and under the contact section on the top there's a schedule a meeting with me and that has my calendar linked up so you can just select some time for a phone call, web conference, or face to face right there. And you can always shoot me an email at roring@ncfg.com.
Richard:
Jag, I want to finish just a couple things real quick. For those who have investment advisors, I recommend reaching out to them and just reiterate what your goals and objectives are. Making sure that if you are comfortable with going on the market, let them know. Let them know that you're okay. You get what's going on with the market. If you're not, schedule an appointment with them. If you don't have an investment advisor and you feel like this is getting too much, that you're doing it on your own, reach out to me. Reach out to a local advisor in your area. This is what we do. We like helping people. We earn our money during these times so I strongly recommend reaching out to so on.
Richard:
The second thing I want to ask everyone for, if they could take time if you're enjoying these podcasts, if they can go on iTunes or Spotify and do a rating or review, it would be greatly appreciated.
Jag:
Apple Podcast, Spotify, or wherever you're listening. Great information today, Richard. I'm glad we were able to knock this out today and I'm going to go wash my hands.
Richard:
Stock up on sanitizer. By the way, I was told in my office today that we don't have to worry about toilet paper, we have cases of it. I shouldn't say that because now people are going to start breaking into my office for toilet paper.
Jag:
Now, armed security now, come on.
Richard:
[crosstalk 00:16:13].
Jag:
I went to the grocery store yesterday and the isle was empty, completely empty the whole grocery store. I said, "Woof, got to find some others. Plan B."
Richard:
Thank you so much, everyone. I hope you're enjoying this podcast.
Jag:
Richard Oring's branch office is 1 Airport Place Princeton, New Jersey 08540. The branch phone number is (609) 924-2049. Securities offered through Royal Alliance Associates Inc. Member FINRA SIPC, advisory services offered through New Century Financial Group LLC, a registered investment advisor not affiliated with Royal Alliance Associates Inc. New Century Financial Group LLC and Royal Alliance Associates Inc. does not offer tax advice or tech services. Please, consult your tax specialists for individual advice. We make no specific comments or recommendations on any tax related details.