March 25, 2009
The ongoing challenges for investors navigating through today’s unpredictable marketplace have been well documented. How investment professionals will use the market deterioration over the past year to their advantage as a unique prospecting opportunity is far less discussed. Offering “second opinions” to those investors who question the advice they have received from financial organizations is a great opportunity to re-engage prospective clients and drive business growth throughout the current cycle as financial institutions continue to look for ways to increase revenues.
We are all too familiar with the volatility and poor market performance experienced in 2008. Equities, as measured by the S&P 500 Index, declined by 38%, the single worst year since 1931. Bonds, on the other hand, were up 13%, as measured by the Ibbotson Associates U.S. Intermediate Government Bond Index. While much has been written about the failure of diversification, I believe these two statistics reveal why the importance of a diversified asset allocation strategy should not be underrated. Consider, for example, that over the past 10 years, the annualized return of a traditional 60/40 balanced portfolio has been about 2%. During this same period, the stock market, as measured by the S&P 500 Index, has had a negative annualized return of -1.4%, marking the first 10-year negative return since the periods ending in 1938 (-0.89%) and 1939 (-0.05%). At the end of this year, the bull market return of 1999 (21%) will fade out of 10-year performance data, which now includes the bear market losses of 2000, 2001, and 2002 (-9%, -12%, and -22%, respectively). As a result, stocks are likely to show 10-year rolling period losses for some time ahead.
No one could predict the magnitude or speed of this market disruption. The result: scores of investors who capitulated in November are still sitting in cash which, over the long term, will likely provide a negative real return. According to the Investment Company Institute, as of February 26, 2009, money market mutual fund accounts held $3.9 trillion, or roughly 40% of mutual fund assets.
Investors holding increased levels of cash presents investment professionals with the prospect of attracting clients who are open to establishing a new relationship with an experienced financial advisor to help them navigate through this difficult investing environment. Now is the time to take advantage of this opportunity to expand your client base, help investors achieve their financial goals, and grow your business.
Source: Ibbotson Associates
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Donald T. Marchesiello, CFP®
Director, Lockwood Advisors, Inc.