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Weather Ahead

by William Smith, CFP®

Flying blind

Inside a dense layer of clouds, I couldn’t see anything outside the plane.  The pilot tried to prepare me for this, but his coaching hadn’t helped in the moment.  It’s difficult to simulate what we were experiencing, instrument flight conditions, at least it was 30 years ago.  In a series of rapid fire instructions, air traffic control finally directed us, “Baron one seven niner romeo papa turn left heading two seven zero, descend and maintain three thousand, join the localizer, cleared for the ILS two three approach, contact Greensboro tower now on one nineteen point one.”

I watched the pilot maneuver the airplane, never once taking his eyes off the instrument panel, checking gauges, following a disciplined process — he remained calm throughout.  Despite my anxiety about this environment: the noisy clamor from the radios, constant terrifying turbulence, and falling forward 200 mph toward our destination with zero visibility — I trusted the pilot.  Scanning the gauges, I found what I thought was the altimeter.  It was spinning counter-clockwise, 3000 feet, down to 2000 feet, 1500 feet and suddenly, we broke through the clouds, several hundred feet above ground, magically aligned toward runway 23.  Once safely on the ground at Piedmont Triad International Airport – I had never felt more relieved yet inspired.

On that day in the summer of 1988, I realized I wanted to learn to fly.  The entire program appealed to me:  the challenge of planning a flight, navigating, communicating, coping with weather, responding to pressure situations – managing my and possibly my passengers’ emotions.  Little did I know that the experience of becoming a private pilot proved to be the perfect training ground for my future career as a financial advisor.

 

Planning your trip

Independent advisors, like my colleagues at Trust Company, serve our clients in a fiduciary capacity, meaning our interests are aligned with yours — we’re in the plane with you.

Much like a pilot, at the beginning of our journey together, we gather details and chart a course to your desired destination.  While the pilot is concerned about fuel needed for the trip, wind speeds and direction, and any restricted airspace along the route, your advisor requires details about your current assets, tax situation, spending needs, charitable and legacy goals.  Do you hold concentrated stock positions?  These are like nasty weather events we can avoid altogether by diversifying.  How have you responded to past bear markets?  They happen with unfortunate frequency (about once every five years since WWII) and best practice suggests we endure through these turbulent patches, trust our process and appreciate that eventually, all bear markets come to an end.

Weather ahead

Inevitably, circumstances may force us to change course enroute.  Sometimes we can navigate around the event, other times we must grit our teeth and fly through the turbulence.  The pilot may encounter different winds than forecast, icing at the requested altitude or even worse.  On the ground, your advisor responds to your life events as they occur: job loss, incapacity, birth of a grandchild, an unexpected inheritance – all of these may require a modification to the original plan.  In the midst of the storm, an advisor, just like the pilot, slows down, maintains a level attitude, assesses the data and focuses on the factors he or she can control:  can we rebalance the portfolio, harvest any unrealized losses, or deploy available cash at discounted prices?

Both pilots and advisors operate in a setting that’s highly volatile, and if not managed properly can have life-altering consequences.  We approach that environment by formulating a plan, avoiding unnecessary risks, and executing that plan with discipline and focus.

Handling turbulence

Regardless of how much coaching you’ve received, bear markets are scary, just like flying through the clouds on an instrument approach for the first time.  Sometimes they’re severe but brief like the market crash in October 1987 or the most recent episode in March 2020.  Other times conditions gradually erode and the environment goes from bad to worse over several years like the Dot-Com bust of the early 2000s.  In all cases however, the most prudent path forward is to remain calm, stay in your seat and trust that the markets will recover.  Every past market decline has been temporary, while the advance is permanent.

For additional valuable perspective on tuning out the noise associated with stock market events, take 2 minutes to listen to this fantastic piece from Dimensional Fund Advisors –  Tuning out the Noise.

Bill serves as President and Chief Executive Officer of the firm as well as Chairman of the Board.  Based in the Greensboro office, he oversees client relationships, assists in new business development efforts, and works directly with many of Trust Company’s not-for-profit clients.