Further Reflection and Preparation
As each of us opens up our latest personal or church investment fund report, we’re probably taking great – almost giddy – satisfaction in the numbers we’re seeing. The markets have been very, very good to us this year (https://vaumfoundation.org/
It’s August
August and September have historically been associated with stock market corrections and October is the month that has seen the most seasonal lows. After the ride we’ve been on, it would not be unreasonable for a correction in the next 3 months.
Current Equity Markets
As I write this, the Dow, S&P 500 and NASDAQ are all at all-time highs and Price/Earnings ratios are in similar territory. The bull market which began in March, 2009 is now almost 8 ½ years old – one of the longest on record. Additionally, the U.S. has a new, unpredictable administration, the highly touted talks on health care and tax reform seem doomed, and several situations in the world (Iran, North Korea, etc.) could flare up at any minute. Further, recent construction spending numbers have not been good and auto sales have declined for 7 straight months. However, on the positive side,
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Remember the Words of John Templeton
Templeton, one of the most successful and respected financial advisors of the 20th century famously said:
“Bull markets are Born on Pessimism,
Grown on Skepticism,
Mature on Optimism,
And Die on Euphoria!”
Where are you? If you (and your Finance / Endowment Committee) are closer to the euphoric end of the scale, maybe now is the right time to think about some possibilities.
What Do We Hear?
Most analysts and economists that we read believe that the U.S. will experience a “correction” or “minor recession” within the next two years. They do not believe this event will be, in any way, similar to the recession of 2008-2009 because, structurally, the economy is much more sound today than a decade ago. Nevertheless, we could see a 20% fall in equity prices. That would equate to a 4,400 point drop in the Dow Jones average! Fortunately, these economists also believe that any recession would be relatively short-lived (12 – 18 months) and that equity prices would eventually recover and go higher.
What is Your Risk Tolerance?
Nevertheless, you and your Finance / Endowment Committee(s) should be having some discussion among yourselves about the possibilities. Suppose you have a $100,000 endowment or building fund invested in the equity markets. Then suppose you receive a report several months from now that says that your account is worth only $80,000 or $75,000? How would you feel? Would you lose sleep worrying about this? This discussion may help you understand how to fulfill your fiduciary responsibility and maintain personal sanity at the same time.
What To Do
I can’t stress enough the need to have discussion with your committee(s). Here are some steps:
- If you’re the chairman, throw out some scenarios and sit back and listen.
- Encourage and draw out the feelings and opinions of everyone on the committee, especially the quiet ones.
- Whatever you decide, make sure it’s a clear majority vote.
- If it’s close to 50/50, continue the discussion.
By the way, someone from the Foundation team would be more than happy to lead or facilitate that discussion.
Don’t be afraid to take some profits. Jim Cramer says there’s no sin in taking money to the bank! If you’re invested in the Foundation’s Stock, Balanced or Balanced Plus fund, now might be the time to move a portion of that investment into safer territory. The Development Company (“DevCo”) is offering excellent rates on its Investment Certificates (ranging from 1.7% for a 6 Month IC to 3.15% for a 5-year IC) and 1.6% for its Savings Certificate (with no required holding period). Should the market correct, you’d have the funds to buy in at bargain prices. Feel free to call us for follow-up and forms.
