Taking the Long View

When investing, it helps to take the long view.

“To give investors the proper perspective on long-term investing in stocks, I like to show them the history of the Standard & Poor’s 500 Index (S&P 500). Educating the investor by giving them a brief understanding of the financial markets is important and empowering,” said Derek Hobbs — a financial advisor at Evart, Young & Hobbs Investment Management — explaining that he walks clients through the S&P 500’s performance from 1926 to 2016 to provide a much-needed investment perspective.

“I like to point out that any given 30-year time interval, the S&P 500 has averaged a low of 8 percent a year return to a high of 13 percent per year,” Hobbs told “Advisors Magazine” during a recent interview. “If you’re going to invest for a long period of time, prior history allows an investor the proper perspective on future returns, the risks involved and it shows them that patience is critically important.”

Evart, Young & Hobbs Investment Management, based in Redwood City, California, is a wealth management firm that provides financial planning and asset management services to its clients. The firm maintains an investment minimum of $250,000, but will make exceptions if the client’s expectations and philosophy align with the company’s, Hobbs said.

Hobbs works with clients to first identify their financial goals. After that, the appropriate financial plan can be crafted. The firm practices asset allocation as the investment strategy, primarily using no-load mutual funds and exchange traded funds as the investment vehicles, and implements the strategy once they have a clear understanding of their client’s investment goals.

In addition to the history of the S&P 500’s average long-term returns, Hobbs highlights the dramatic ups and downs that pepper the index’s past. For example, between 1980 and 1999, the S&P 500 grew at a jaw dropping average of 17.9 percent annually.

“During that timeframe, if the market dropped, investors felt confident that stocks would come back, and they did very quickly,” he said, adding that market downturns in August of 1997 and 1998 saw the market “come back with the same vengeance on the upside.” The aftermath of the 2008 financial crisis, which threw global markets into turmoil, has seen the average annual S&P 500 return dip, but the index remains a crucial tool in explaining the risk and returns of the stock market.

“The mindset of the investor has become more defensive because of 2008,” Hobbs said. “However, citing the prior example, if the returns of the S&P 500 were extended from 1980 to the end of 2009, which includes the 2008 financial disaster, a thirty year time interval, an investor would still have had a long-term average return of over 10% per year. When investing with a long-term mindset, the returns of the S&P 500 land close to their historical averages.”

Hobbs works with investors to help them understand what a “reasonable” return looks like, and then looks at their additional investments they might be adding over time to see if they will be able to have enough income to sustain themselves throughout retirement. That requires frequent client communication, a balanced investment portfolio of stocks and bonds, careful planning for unexpected emergencies — everything from a death in the family to a leaky roof — and the ability to rein clients in when the market shakes.

“Our greatest value to our clients is to have the appropriate asset allocation and ability to manage client emotions when financial markets are performing incredibly well or poorly,” Hobbs said.
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