Redrick Terry:
4 Your Money time now. We are joined by David Nelson, CEO of NelsonCorp Wealth Management. David, welcome back.
David M. Nelson:
Thank you, Redrick. Appreciate it.
Redrick Terry:
Absolutely. So, as we approach the end of this crazy year for financial markets, what stands out to you as the defining characteristic of 2020?
David M. Nelson:
No question, this is an easy one. Well, of course, it’s not that simple. It’s volatility. So what we’ve seen this year as far as the volatility is just off the charts, and looking at as far as going forward, what have you, individuals need to be well aware as far as the risks and the exposures that they have. Today we’re going to talk about that volatility, but we’re going to take a little different slant as far as the volatility.
David M. Nelson:
Normally, when we talk about volatility it typically centers around a term called the VIX, and it’s a measurement of volatility. Today, we’re going to talk about tick, and tick is a pretty simple concept to understand. When there’s a buy the sell that takes place, there’s a tick that takes place with that. If we look at it, the chart that I’ve brought along today I think will give people a pretty good feel as far as this tick concept. And if you look at the far right, which is where we want to focus, as far as the bulk of the year we’ve been at expanded levels.
David M. Nelson:
So, history says that plus a thousand to minus a thousand is the normal, if there is such a thing as normal range, and this year, what we find is numerous occasions, historical levels, where we’ve been outside of that tick level. Again, what it’s basically telling us is that the volatility has increased, just a little different way of measuring it. People are ignoring fundamentals as far as at this point in time, and they’ve got a quick trigger when it comes to making decisions on buying and selling. Again, hopefully it’s working out for people, but history says generally that doesn’t work out very well.
Redrick Terry:
Yeah. Big increases there on that graphic. So, how have you seen this volatility impact average investors throughout this year?
David M. Nelson:
Well, I would guess that most people have gotten their eyes opened up to volatility as far as this year. Unfortunately, what we’re seeing more and more, Redrick, is people coming in that had been fully invested. They got their eyes opened up as far as with COVID. You look at March, and you look at April. I mean, these were some really volatile months as far as for the market. So, these people sold, many of them, as far as towards the bottom, and now they’re trying to decide as far as if they get back in or not.
David M. Nelson:
This is a real problem as far as for many people. Again, we talk about having a plan. Mike Tyson, the famous boxer, has a great quote. When we talk about planning, he says, “Everybody has a plan until they get punched in the face, and then the plan goes out the window.” So, that’s our concern as far as for many individuals.
Redrick Terry:
So, given that volatility has been elevated throughout the year, is this something that could be considered a permanent feature of markets moving forward?
David M. Nelson:
Well, I don’t think so. If we look in the history book, what we find is that there’s cycles that the markets go through. We just go back to 2017. It was one of the lowest from a volatility perspective that we’ve ever had, ever. Then we moved to ’18, and ’18 was fairly calm until we get into the fourth quarter. Then all bets were off. The market dropped pretty, pretty dramatically and very quick.
David M. Nelson:
So, we don’t think that that’s the case. Again, what we tell people is that matching up your investments, the mix of investments to as far as your desired risk levels, is key. I know it sounds boring. I know we bring it up all the time, but it’s really, really important that people heed this advice because this volatility is not going to go away in the short term.
Redrick Terry:
Absolutely. David, as always. We appreciate you being with us today. Thanks for joining us.
David M. Nelson:
Thank you, Redrick.
Redrick Terry:
And if you missed any part of our discussion, we will make it available to you at ourquadcities.com.