Wednesday's speakers said that savvy financial advisors are increasingly essential for individual investors.
The challenges and opportunities confronting financial advisors in one of the most uncertain economic environments in memory were central to discussion Wednesday at the Morningstar Investment Conference.
Davis: Stocks Still the Way to Go
In a keynote speech focused on an essential role advisors can play in improving the performance of client portfolios, Chris Davis, chairman of Davis Selected Advisers, Inc., said fund performance is only one factor in determining the success of an investor; emotional buying and selling decisions can do as much damage to a portfolio as a troubled holding. Because flagging markets lead to panicked investors, advisors have the opportunity to provide a huge service by encouraging clients to stay the course.
"We manage money. We don't manage clients," Davis said. "That's what you do."
Investors thinking about yanking their money out of the market should be reminded of the long-term sensibilities that drive sound investing decisions, as well as the folly of trying to time their return to the market. "Recoveries are front-end based," Davis said, adding that investors who think they have a model that can time the recovery might as well be practicing alchemy. "What happens with a lot of these models is that they're driven by back-testing," Davis said. "So what you get is correlation. What you don't get is causation."
Davis produced metrics to show that disciplined investing in the stock market was even the right choice to make during the most devastating economic environment on record, The Great Depression. The 25-year period following the stock market collapse of 1929 would have rewarded an investor who invested an equal amount of money each year with a 12.1 percent annual return thanks to dividends and such a low starting point.
According to Davis, navigating a path to success even in that worst-case scenario hinges on the ability of financial advisors to help clients understand that, over time, investing in the stock market remains profitable and safe.
Roundtable Weighs In on Going to Cash
The complementary roles played by fund managers and financial advisors in the financial success of an individual investor was also a focus in Wednesday's Fund Research Roundtable. Morningstar's Christine Benz, Don Phillips, Karen Dolan, Russel Kinnel and Laura Lutton joined financial journalist and event moderator Chuck Jaffe on stage.
A subplot to the story of vanishing financial returns in the past year has been the blame game played between financial advisors and fund managers over the decision to hold stocks rather than unload them in favor of safe cash.