In this month’s edition of “Money Matters,” Scott discusses the strong market in 2019 and how people should evaluate their portfolios as 2020 moves forward (Note: this episode aired in February 2020).

Money Matters: Portfolio Management in Bull Markets

0:00:00.3 Jean: WTIP is pleased to debut Money Matters, a new monthly feature intended to help us understand more about our finances. Scott Oeth is a certified financial planner, and adjunct professor. He's taught hundreds of financial professionals about retirement planning and wealth management strategies. Scott joins us now by phone. Hey, welcome, Scott.

0:00:23.2 Scott Oeth: Good morning, Jean.

0:00:23.9 Jean: How are you today?

0:00:25.6 SO: Doing very well, yourself?

0:00:27.1 Jean: Very good, thank you. So give us a little of your background and your work history in finance.

0:00:33.6 SO: Yeah, thanks for asking. I have been in finance my entire career, I had a stint as a bank manager and doing bank lending, I worked for an insurance company doing advanced planning and in a corporate training role, and for the last 20 years, I've worked as an individual, personal financial advisor on a fee-only basis and along with that, as you mentioned, I've worked for a couple of different universities as an adjunct professor teaching the certified financial planner program.

0:01:01.2 Jean: Sounds very well-rounded. That sounds terrific. So do you feel that you specialize in retirement planning or just general financial planning?

0:01:11.4 SO: Well, both. Definitely, I'm trained as a broad generalist, but we do a lot of work on retirement plan, that tends to be the big issue that gives folks very serious about their money. Wondering can they retire? When can they retire? What do they need to do? And that is actually the subject that I taught in the Certified Financial Planner program for many years and I've written on it and spoken on it, and so yes. Retirement planning is a big part of our business.

0:01:36.2 Jean: Very good. So what are your thoughts on the 2019 market that we've just kind of... Has just run its course here. What would you give people some thoughts or encapsulate what happened there?

0:01:49.4 SO: Yeah, well, I'd tell you, it was a remarkable year for investors, that was one that we don't see often, so hopefully listeners were able to participate and can feel good about that, but maybe manage expectations going forward. Just to give you a little context, US stocks were 31.5% and bonds were up 8.7%, so both those are tremendous numbers, and what's really unusual is the combination that there's only four years since 1926 that had better returns for a combined stock and bonds. So it was a huge year. This is coming off of a really sharp drop at the end of 2018, and there's a lot of naysayers saying there's gonna be trade wars, there's a lot of concerns, stocks are overpriced, but once again, they were wrong, and as one of my partners likes to say, being an investor is like riding a rollercoaster, they're both a lot of fun as long as you don't try and get off in the middle of the ride. I think 2019 proved that again, it makes sense to have a good plan and to stick with it.

0:02:51.9 Jean: Alright, so what should we be thinking about for 2020?

0:02:56.5 SO: After a big year like this, it's time to think, "Do you have the right asset mix? Do you need to make some adjustments?" And it wasn't just the year of 2019, we ended 10 years of almost straight climb upward since the financial crisis, there were some hiccups and some slow periods, some downturns, but no real classic along 20% down bear market, and just as importantly, because the economic growth was slow and tepid in the beginning, since the financial crisis in 2008, we've went 10 years without a recession. That's really the first time that happened in US economic history, so an unusually long period of upward climb in a very strong one here in the last couple of years, so it's really time to take a look and say, "Do I need to adjust my allocation?" Everyone has heard the story, you should buy low and sell high. Sell high, take some of those gains, buy into other things, but no one wants to do it when you're really in the moment. It's too fun riding on those gains.

0:03:54.2 Jean: Sure.

0:03:55.1 SO: But we just take a look at it and say, there's been a huge run-up in stocks in particular growth stock and very specifically, technology stocks, so you need to take a look at it and say, "Does my portfolio still make sense or has it inadvertently become a tech stock fund? Is that where I wanna be?"

0:04:10.4 Jean: So when you say the right mix, you don't necessarily mean just how much in stocks and how much in bonds, you mean all of that, like the tech stocks are... I'm not a financial person, so I should stick with the script questions.

0:04:24.7 SO: Yeah, no, no, no, no. No, that's very key. So the biggest, the high level decision is how much in stocks versus bonds, and how much should you keep in cash for safe money, but yes, within that, the next level down, absolutely is taking a look and say, within those stocks has it really gotten skewed towards growth stocks, towards technology stocks? As an example, in 2008, ExxonMobil was the largest stock in the S&P 500. Now, Apple alone is larger than the entire energy sector in the S&P 500, and that's just Apple.

0:04:58.5 Jean: Just a major shift.

0:05:00.8 SO: So there's Facebook and Netflix and Google and yes. So seeing about the right type of mix and do you need more value oriented companies, companies with higher profitability, that would be an important thing to think about.

0:05:11.8 Jean: Okay, so are there some additional basics that we should keep in mind to accomplish our financial goals?

0:05:18.9 SO: Yeah. A great question. I think we talked about some index and index returns and benchmarking your portfolio was important, but in my mind, the most important benchmark is your personal financial goals, what you want your money to do in the future, and are you on track for those or not, and the financial planning process that's been developed is really the best methodology for staying sane and making smart choices with your money and not getting caught up in the fear and greed cycles on the market and writing down your goals, understanding the timeline of when future amounts of money will be due. Prioritizing those goals, whether it's paying off debt or buying a home, or maybe buy your next home, or paying for kids' or grandkids' college, retiring a certain point. Where do those fall in the timeline? How important are they? They probably don't hold equal importance to you, and then really important is that, we get into the science of good financial planning, what is the cost of those goals? How much should you be saving now to accomplish those and where and what types of investments? Can you let the market help you out, or are they near-term high priority goals that really shouldn't be invested and put at risk? Then revisit, review that and having an accountability partner, someone who understands this stuff, who you can check in with, who can help keep on track is very important.

0:06:43.8 Jean: All very good points. So we're talking with Scott Oeth. We'll be talking about money matters with Scott on the first Wednesday of the month on North Shore Morning.