Page 28 - Investment Advisor December 2022/January 2023

COVER STORY

complex set of factors have influenced this year’s vola- understand that that’s how you’re making your decisions.”
A tile markets, creating a need for financial advisors to How clients position their portfolios, of course, depends
offer more education for concerned clients, according to partly on their stage in life. “If you’re 30 years old, what you
Peter Mallouk, Creative Planning president and CEO. He also want is for this turmoil to go on longer so you can accumulate
offered several insights for financial advisors and investors to while this market is weak,” Mallouk said.
consider in approaching the current environment. The picture looks different for retirees or those nearing
“I think it’s a more complicated time than normal,” Mallouk retirement. “They are in a precarious place because they really
said in an interview earlier this year, noting key differences need to preserve the purchasing power of their wealth,” which
between this year’s market downturn and the past four bear means holding on to asset classes that are susceptible to mar-
markets. “These were four very scary bear markets but they ket volatility, Mallouk said. “It can be a scary time” for those
all had one thing in common: They all had a single cause,” he entering retirement.
explained, citing the tech bubble, 9/11, the 2008–09 financial “Make sure you’re covered for the short run and own
crisis and the 2020 coronavirus pandemic. the riskier assets for the long run,” he said, noting
In contrast, a string of developments have that even those entering retirement have long
rocked financial markets this year, including investing horizons.
an overbought stock market, Russia’s inva- Mallouk wrote earlier in the year that
sion of Ukraine, supply chain disrup- many high-flying investments from
tion, high inflation, Federal Reserve recent years have been especially hard
rate hikes and rising COVID cases hit in 2022, far more than the S&P
leading to new lockdowns in key 500 index. (The S&P 500 was down
markets, he noted. about 20% through Nov. 9.)
“There’s so much information, “Many investors think you can
it’s not an easy narrative to explain buy and hold your way through
or understand,” Mallouk said. markets like this, but if you are hold-
“There’s a lot of complexity and a ing garbage, it isn’t coming back,”
lot of uncertainty and the market is he said in May. “This includes most
behaving accordingly.” SPACs, many NFTs, cryptocurrencies
There’s another difference this time. In (and) high-flying small call cap stocks with
the past four bear markets, the Federal Reserve no expected earnings to be seen.”
“was on the investor’s side” and pumping money into Another different element this time is that prices
the system, Mallouk said. Now, given high inflation and low for bonds, usually considered safe havens, have been hit as the
unemployment, “this is the first bear market in a long time Fed has raised interest rates, so assets may not behave the way
when the Fed is on the opposite side” and wants the market to people expect, Mallouk noted.
cool down, he added. “It is going to take an understanding that there are going to
This market complexity may require more education for be times when everything is up or down. It’s temporary,” and
clients. “Different clients bring different concerns,” Mallouk investors shouldn’t make portfolio mistakes because of it, he
said, adding that some may think there’s only one issue driving said. Mallouk doesn’t expect this uncertainty to continue for
the market. His advice for advisors? “They need to get back to long. “A few quarters at most, 18 months or so of this turmoil.
focusing on the clients’ needs. What do the clients need and Eventually the Fed’s going to get the economy calibrated to
when do they need it?” where they want.”
That means owning the kind of assets that don’t require Financial advisors and investors need to look at more
investors to worry about what happens to energy prices in the than one variable, although any Fed decision to accelerate Warren: Al Drago/Bloomberg
next six months or with the pandemic or the supply chain in or decelerate rate hikes will have an impact on markets, he
the next year, Mallouk said. “Just own things that over certain said. “I pay most attention to what the Fed’s going to do,”
periods of time tend to do well and make sure your clients Mallouk said.

26 INVESTMENT ADVISOR DECEMBER 2022/JANUARY 2023 | ThinkAdvisor.com