Volatility in the Markets

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Recently, the stock markets have seen an uptick in volatility. Lately, increased unpredictability (large daily swings, late day sell-offs and the occasional large, intraday increase due to “bottom feeding”) has been more of the norm, creating anxiety for some, but opportunity for others –depending on how it’s viewed. To keep this in perspective, I want to provide some data for you to consider. The market is still up more than 30% since the end of 2016. In the last eight months, the market has ended higher each month than the end of the month before, and has ended up higher in 11 of the last 18 months. Some opine that one of the reasons for the recent drop was that the market was overvalued, overheated, and quite simply needed a breather. These 10% corrections are normal and healthy for market valuations to reset, but because they haven’t occurred much recently, it’s more difficult for us to process. 

Basically, there were four other reasons for the recent increase in volatility. The first is that the Federal Reserve (Fed) raised interest rates. In a healthy economy, the Fed does not want runaway inflation, so they begin to raise rates in an attempt to slow growth. If the market perceives this rate rise to be too much too soon, this action could have negative impact. History indicates that we can have a rising stock market alongside rising interest rates. The second reason for increased volatility is continuing talks with China over tariffs and trade concerns. There is some recent indication that these talks have been positive, which is providing some market relief. The third reason is owed to computer-based trading programs. In large part, the buying and selling of stock is accomplished by computer-based algorithms that do not involve a human. These programs do not account for the fundamentals of a company’s balance sheet, debt restructuring, earnings per share, potential for growth, etc. They are programed to buy or sell in large blocks which can sometimes have a significant effect on market moves. Often, these moves occur late in the day after 1400, which is why last month, we saw great fluctuations during the last couple hours of trading. The fourth reason was the uncertainty of the midterm elections. Congressional swings can affect the market, at least over the short term.

Worth noting and remembering is a quote by Warren Buffet: “Be fearful when others are greedy and be greedy when others are fearful.” Recently, I read the following eye-opener in an article in The Motley Fool: “If you bought an S&P index fund in 1998 and held it until the end of 2007, you achieved a 301% total return. However, if you missed the best five days during that entire period, your total return would drop to 66%. If you missed the 20 best days during that entire 20-year period, your total return would be just 26%.”1 This sums up why those who have a desire to go to cash or treasuries during periods of volatility should not. You simply can’t time the market so you never know how day-to-day results will affect your overall return. 

It has been proved over and over that it is most important to develop a long-term plan and stick with it. Equities still remain the play for long term investing and provide the best opportunity to outpace inflation and provide for the potential of adequate capital appreciation. It’s that rollercoaster ride that isn’t easy to stomach.

SOURCEAero Crew News, December 2018
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Glenn Nevola
Current airline captain and also financial advisor specializing in providing financial assistance to fellow airline pilots in their pre and post retirement planning. Glenn Nevola has been an airline pilot since 1986 where his career started with People Express Airlines, which merged with Continental Airlines in 1987 and was then merged with United Airlines in 2010. He is currently based in Newark as a 737 captain. In addition to being a pilot, he operated the financial arm of a real estate firm that purchased, renovated, rented, marketed, bundled and sold to investors over a 12-year span. He was personally responsible for over 300 closing during that timeframe. More recently he was a former financial advisor with Morgan Stanley in NYC where he acquired his Series 7 and Series 66 licenses. He brought over to the firm a concept and business model that would assist retiring airline pilots with post - retirement wealth management. This was, in part, augmented by the fact the mandatory retirement age was recently changed from age 60 to age 65 for commercial airline pilots. When Morgan Stanley hired him, the oldest of these pilots were then approximately 63 years of age. His unique position of living in both worlds – flying and finance - provided him the ability to market to his niche in direct target marketing from one of their own. He also has skin in the game, as he is a pilot, who participates in the retirement plans on which he advises and as such is in similar models as many of his clients. As time went on at Morgan Stanley a decision was made, based on many factors such as compliance restrictions, inability to market and assist younger pilots with their desire for 401(k) management and general restrictions on building out the business model, to split off and create his own financial services firm, Flight Line Financial, LLC (FLF) – a registered investment advisor based in NJ. FLF is also licensed in NJ for insurance enabling the firm to provide annuity counseling. This created a win - win scenario for further growth by allowing FLF to focus on 2 distinct groups of pilots – younger pilots, less than age 59 ½ and older pilots over age 59 ½. For the younger group, FLF provides asset allocation strategies incorporating diversification, dollar cost averaging and rebalancing options to pilots for a flat annual fee. Also discussed with this group includes topics such as Roth vs. non-Roth, 529’s, max contribution limits, 415 (c) limits, spousal accounts and other general financial topics. For the older pilot group, FLF has affiliated with a leading wall street firm for post-retirement financial planning. Wealth management services provided include many aspects such as creation of post retirement financial distribution plan, trust and estate planning, diversification, allocation, hedged equities, bond structuring, long term care, etc. The firm FLF is affiliated with has been in the wealth management business since the 1970’s and manages over $2 billion in assets from individual investors. Glenn has the unique position of living in both worlds – flying and finance. He interacts with his target market every time he is at the airport or on a trip. In numerous businesses, owners pay substantially for leads in their specific target market, such as mailing lists, calling lists, email lists, etc. Additionally, servicing the younger pilots creates pipelines for future rollovers. Currently FLF manages approximately $250 million in assets across approximately 200 clients.

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