2018 – 4th Quarter in Review

It is hard to think about 2018 without dwelling on the final 2 months of the year. So let’s cut to the chase. Instead of starting at the beginning of the year, let us focus on some of the volatility in the last 2 months and the result it has had on the returns for the year.

The market has been down – and down dramatically – the final two months of 2018. During times like this, when every fiber in my body is telling me to sell, I must stick to my fundamentals and the specific plan we have laid out for each one of you, my clients. Each one of you has a LONG TERM plan and sticking to that plan is going to be a very important foundation for your financial goals. I am reminded of one of my favorite quotes I turn to during times of volatility:

“Every past decline looks like an opportunity; every future decline looks like a risk.” – Barry Ritholtz

I have to remind myself that even the most well-intentioned and well-designed portfolio carries a level of risk, and that level of risk may be correlated to its return. There is a reason I take so much time designing each of your portfolios for your specific needs. That reason is to help supply the retirement lifestyle you want to  live. For most, that lifestyle involves taking some risk.

Investor moods don’t care about spreadsheets, reasoning, formulas, or metrics. They make fools out of those who try to predict them. Market valuations can move fast, but people’s expectations of future returns are stickier. That is true in both directions. Gains shouldn’t feel as good as they do, and declines shouldn’t hurt as much as they do – if you have a time horizon over a few years.

Your lifetime results as an investor may vary by what you do during volatile times.

The financial media is designed for viewership. They target their audience with outlandish headlines and scare tactics to gain viewership and get you glued into their programming day after day.

Think about some of the headlines you have seen over your lifetime. Many of those headlines evoked emotions and maybe even fear but using the ability of retrospective you know that things weren’t nearly as bad as the headlines made it seem. The thing that news outlets do know is that Bad News is good for business. This can often result in investors making poor decisions in an emotionally charged moment in time.

If we view the slide below, you can see that investor behavior has the largest impact on portfolio returns:

It is one of the hardest parts of my job, but it is very important to design a suitable plan and stick to that plan. One of my mentors, Carl Richards, has designed a clever simple drawing he shows his clients to demonstrate this point:

During times of market volatility, consider the following; turn the TV off, put the newspaper down, and go outside to take a deep breath and enjoy your life. I know times like this can be stressful, and I am sympathetic to that stress. We are all emotionally wired with a fight-or-flight response in times like these. That emotional response could cause people to sabotage their portfolio and blow up their long-term plan. We have created your financial plan and portfolio specifically for you and your individual needs. Stay the course. I keep my household number small by design. I know each of you, and I know your individualized portfolios. Any decision that is made is made based on your specific plan.

When I look back on the year to figure out if there are any adjustments that need to be made in 2019, or if there are any areas where I could have improved on my clients’ portfolios in 2018, there is normally an asset class or two that stands out as an “out-performer” during that time period. This year-to-date can be viewed as a slight anomaly, as there was not one asset class as of 12/17/18 that had a positive rate of return after you subtract out U.S. headline inflation.

The world is pretty much designed to convince us that we’re always at DEFCON1, when 5 is the mode and 4.5 the mean. There are some interesting, and perhaps even extreme, things going on this year, but the overall U.S. stock market is not one of them. You would be forgiven if you think that the SP500 is on a death march, considering some of the headlines lately.

That is a mildly bad year versus history. But, again, that’s also nothing to write home about (or, frankly, to write about at all!) See the past blog post, “Waiting for the other shoe to drop,” to see the major issues I am watching heading into 2019.

The stress and worry you may feel is warranted, but the actions that you take based on the short-term emotions of the moment can define your entire retirement. I sincerely thank all of you for the trust you have placed in me and for allowing me to be part of your retirement journey.



Philip Lockwood | Founder + Managing Partner
Address: 3100 Ingersoll Ave. Des Moines, IA 50312

Phone: 515-274-8006


Email: Plockwood@parklandrep.com

Website: Lockwood Financial Strategies


Securities offered through Parkland Securities, LLC, member FINRA (FINRA.org) and SIPC (SIPC.org). Investment Advisory services offered through SPC, a Registered Investment Advisor. Lockwood Financial Strategies, LLC is independent of Parkland Securities, LLC and SPC