Financial Q&A with Cheryl Holland, President and Founder of Abacus Planning Group
Cheryl Holland is president and founder of Columbia-based wealth management firm Abacus Planning Group. She is a Chartered Financial Analyst and a Certified Business Financial Advisor. We asked her what she’s hearing from her clients regarding the pandemic-related financial downturn, and what she’s telling them.
Q: What advice are you giving your clients regarding their investments?
A: We plan for sudden shocks from unforeseen circumstances. We are focused on reminding clients of the following:
A pandemic is a once in a lifetime/century event. Your portfolio is designed to weather once in a lifetime/century events. We cannot prevent losses, but we can mitigate them and discipline ourselves for time-tested strategies for recovery;
You have enough cash flow for your lifestyle for the next five to seven years (depending on the risk tolerance of the client). We have planned together for a downturn of this magnitude. For clients accumulating rather than distributing portfolio dollars, we tell them they have enough conservative investments in their portfolio to take advantage of increasing lower-market valuations, i.e., we like buying stocks at a bargain just like we prefer buying shoes or groceries at a bargain;
We continue to sell the investments that are now at a loss in your portfolio. Taking losses now gives you a reservoir of losses that investors can carry forward to future tax years to offset short- or long-term investment gains. This tax-loss harvesting strategy lowers your long-term income taxes. Saving taxes creates wealth;
We have a plan to rebalance your portfolio (our way of disciplining ourselves to sell high and buy low). Just as we were trimming stocks last year (selling high), we are now buying more stocks at low points;
We continue to focus on quality investments, especially for the bonds in your portfolio. Bonds are earning a tiny amount of interest but they provide ballast to the portfolio by retaining their value during these wildly volatile weeks in the global stock markets; and
If you are deeply nervous, let’s look at what lifestyle choices you might make for the next six to 12 months to lessen the withdrawals from your portfolio to give it even more resilience.
Q: Are your clients worried about their investment portfolios?
A: Yes, about 5 percent of our clients are deeply worried. They often have other transition challenges – a serious health problem that puts them at greater risk of dying from Covid-19, a child who is now unemployed, they’re just retired and have gone from employer paycheck to portfolio paycheck. They’re worried about their health, about friends and families out of work, and that their favorite businesses are closed and may not reopen when things get back to normal. They’re worried about the loss of day-to-day contact with family and friends, about the loss of contact with their spiritual communities, about the loss of future plans to travel and to enjoy weddings. Worst of all, our clients who have lost loved ones in the past 45 days have no way to organize traditional funeral or memorial services. It’s important to listen to a client’s worries. They don’t need telling, they need listening.
Q: Are you recommending that clients change their portfolio balance, moving into, say, cash or commodities such as gold, or do you see continued opportunities in securities?
A: We have had a 5 percent to 12 percent allocation to hedging strategies the past five years. The purpose was to mitigate volatility in the portfolio with more returns than bonds. We have liquidated that position for most clients and moved those dollars into global equities. We think global diversification will reflect the uneven recovery of economies around the world, which may well differ from one another depending on a variety of geopolitical and economic factors.
Q: How do you alleviate client concerns when there are so many unknowns?
A: We think Winston Churchill had it right – tell the facts/truths no matter how grim, share a plan of action for dealing with the facts, and provide a sense of hope about the future. We share clients’ portfolio losses with them, explain the headwinds to the global economy, the challenges to both Main Street (mom and pop businesses) and Wall Street, share our action plan for their portfolio and remind clients that they have faced personal or financial challenges in the past, which they have overcome time and again.