A Conversation With ... Steve Toomey

Photo provided by BKD Wealth Advisors LLC

What are some of the wrong tendencies of those with financial investments in bear markets?
Invariably, the wrong choice that tends to get made is someone deciding they want to remove the “risk” from the portfolio, and maybe that’s the exposure they might have to stocks. It seems like they tend to do that on or around the day the stocks have “bottomed” in that period of time. We’re not saying that stocks bottomed; we don’t know that. But invariably it seems like the emotional side, the psychological side, when it’s darkest, that’s when those decisions tend to be made. Our effort is to help clients think through that before they were to make a decision. We have over 1,600 clients throughout the country and there’s probably one or two that have gone that route after having discussion and walking them through why that might not be the best idea. One of those clients actually came back to us about two weeks afterward and said, “I made a mistake.”

What are the right moves to make in a bear market? Where are the opportunities?
Harken back to the planning that we’ve done and to not panic. There are things that can be done when a portfolio is down and maybe helping clients think through those things, such as tax-loss harvesting. Maybe it’s a financial planning option of thinking about doing a Roth conversion of an (individual retirement account). Now with values down, it might be a good time to do that if they have the cash available to take care of the taxes – trying to really maintain the investment discipline and rebalancing the portfolio.

Also, one of the things that we’ve talked about with our clients is if you think back to the last recession that we had in the last bear market in the 2008 or 2009 period, that was what I’ll term an economically induced bear market. And what we’re going through today was not that. It was an event-driven bear market. Prior to this (coronavirus pandemic), the economy was strong. I think it’s given people some ability, if you will, to have peace about where we’re at. There’s the old adage of buy low and sell high. That means that in markets like this, be diligent about rebalancing. We’ve had a lot of clients over the last month actually come to us and say, “Hey, I’ve got cash that I’ve built up. I really think we ought to invest in.” And that’s another great way to effectively rebalance the portfolio.

Considering the coronavirus pandemic comes on the heels of 10 years of economic growth, does that allow for a faster bounce back?
No one really knows. If you think about what the government has done to help support the economy and how long are we shut down in the various cities and the stay-at-home orders, if that doesn’t go exceedingly long, I think that’s going to help position us to have a quicker turnaround. But I would hate to even try to make a guess at when that could happen.

So what’s your response to clients when they ask when this will stabilize?
What we do know is the government has put stimulus into the economy to help, and I think in the government’s mind it’s to help create some kind of a floor. Since that happened, the market has responded in a very positive manner. Trying to predict when we come out of this and what’s the timing I think is pretty difficult, but there are at least signs that things have stabilized. If you look at what the stock market has done since March 23, when it reached its low in this current environment, you would get just some indication that at least investors are looking ahead and investors are feeling much more comfortable with the outlook today.

The government is basically making the commitment, if you will, that we’re going to do whatever it takes to make sure this economy can get back on track. I think that’s given a lot of people some confidence that if my vision is still long term as an investor, and say long term is three, five or 10 years out, then I’m comfortable. If the near term is the outlook for somebody, the next three (or) six months, that’s obviously going to take on a whole different perspective.

Steve Toomey can be reached at stoomey@bkd.com.