August proved to be a tough month for stocks, with each of the benchmark indexes listed here ending the month notably lower. Investors tried to decipher mixed economic data throughout the month, attempting to gauge the course of the economy, while trying to determine what the Federal Reserve will do with interest rates moving forward.

Speaking of the Federal Reserve, it did not meet in August, so interest rates remained unchanged. However, Fed Chair Jerome Powell spoke at the Jackson Hole Economic Symposium (see below) and reiterated the Fed’s intent to continue its restrictive policy until interest rates fell to 2.0%.

Gather More Assets by Developing Your Competitive Edge – Solve for Systematic Risk

Asset allocation has been a steadfast investment strategy since the 1980s. However, to truly stand out in the financial advisory field, you must go beyond the ordinary. Most advisors employ some form of asset allocation, whether it’s standard corporate models, untested personal strategies, or models from external sources like financial magazines or planning software. Even those who manage their own investments often rely on asset allocation models provided by their custodians.

If Everyone Else Is Doing the Same Thing, How Do You Develop a Competitive Edge?

To distinguish yourself from the crowd, you need to address the issue of systematic risk, a risk inherent in the entire market, also known as “un-diversifiable risk.” Factors such as interest rates, economic downturns, and geopolitical conflicts fall under this category because they impact the entire market and cannot be mitigated through diversification.1

Initiating the Client Conversation: Introducing Systematic Risk

When meeting with prospective clients and evaluating their current investments, ask a simple question: “How are you managing systematic risk?” Chances are, they won’t be familiar with the term. This is your opportunity to introduce them to the concept by showcasing the “Sequence of Returns – What a Difference One Year Makes” PDF.

This document illustrates the critical role of timing when it comes to retirement planning. Choosing the right year to retire can provide financial stability for 30 years, but retiring just one year earlier could deplete your savings in as little as 13 years using the exact same investments and income distributions. Why? Because the sequence of investment returns is paramount once you start drawing income from your investments. A significant early loss can be devastating because as withdrawals continue, there’s less capital available to recover when the market rebounds.

Consider recent history – from 2000 to 2022, the S&P 500® saw single-day declines of more than 2% on 272 occasions, compared to 160 days in the preceding 49 years (1950-1999).2 This means nearly twice as much market volatility in half the time. Volatility is the new normal, and most clients are unwilling to take this gamble with their retirement funds and do not want to experience the emotional roller coaster that comes with this approach. After sharing this information, present your clients with a straightforward choice: “Do you want to ignore or prepare for systematic risk?”

Beacon’s Solution: Two Lines of Defense

At Beacon Capital Management, we advocate for proactive preparation and participation, starting with the departure from traditional S&P 500 reliance. Our approach emphasizes maximum diversification by evenly distributing equity allocations across 11 sectors as the first line of defense. However, recognizing that asset allocation alone may not suffice, our second line of defense involves safeguarding against catastrophic losses – your competitive advantage. Beacon’s portfolios integrate built-in stop-loss protections, effectively minimizing losses before they can wreak havoc on your portfolio.

Want More Resources You Can Share with Your Clients? 

Visit the Advisor Toolbox or speak with your Beacon representative today!

Sources:

1 https://www.investopedia.com/terms/s/systematicrisk.asp 

2 Standard & Poor’s. Stocks represented by S&P 500

Chris Cook Visits NYSE

In August, Beacon President and CIO Chris Cook visited the NYSE and InvestmentNews studios to promote the Beacon philosophy, including new ETF products now available specifically to help you grow your business with next-gen investors with lower portfolio minimums:

“Our clients are focused on downside protection. Our ETF is based on our flagship portfolio, our Vantage 2.0, which has been very successful. It has a very defined set of rules that are easy to understand for clients and protects that downside […] We want to make that available to the independent advisors that we work with as they start to work with that next generation of clients to make things very easy to build that relationship.”

Schwab Transition Complete

If you have any remaining questions, log in or website issues, or would like to walk through paperwork, reach out to our service team for assistance.